High-Risk Series: Quick Reference Guide (Other Written Prod., 02/01/97,
GAO/HR-97-2).

GAO published a Quick Reference Guide that summarizes the status of the
20 high-risk program areas it has tracked since its last report series,
and 5 areas that are newly designated as high-risk. The areas subject to
review included the: (1) Department of Defense's (DOD) financial,
contract, weapons system acquisition, and inventory management systems;
(2) DOD infrastructure; (3) Internal Revenue Service's financial
management, accounts receivables, and tax systems modernization; (4)
federal tax filing fraud; (5) Customs Service's financial management;
(6) Customs Service's and Department of Justice's asset forfeiture
programs; (7) Federal Aviation Administration's air traffic control
modernization; (8) DOD Corporate Information Management initiative; (9)
National Weather Service's modernization; (10) federal information
security; (11) the Year 2000 problem; (12) Medicare Program; (13)
Supplemental Income Security program; (14) Department of Agriculture's
farm loan programs; (15) Department of Housing and Urban Development;
(16) Department of Energy's and National Aeronautics and Space
Administration's contract management; (17) Superfund Program; and (18)
2000 decennial census.

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

 REPORTNUM:  HR-97-2
     TITLE:  High-Risk Series: Quick Reference Guide
      DATE:  02/01/97
   SUBJECT:  Risk management
             Defense procurement
             Student financial aid
             Financial management
             Farm credit
             General management reviews
             Systems conversions
             Census
             Fraud
             Contract administration
IDENTIFIER:  Defense Business Operations Fund
             DOD Corporate Information Management Initiative
             Soviet Union
             IRS Questionable Refund Program
             IRS Document Processing System
             IRS Cyberfile
             Treasury Asset Forfeiture Fund
             FAA Advanced Automation System
             FAA Air Traffic Control Modernization Program
             TSM
             HCFA Medicare Transaction System
             Federal Family Education Loan Program
             National Direct Student Loan Program
             Federally Insured Student Loan Program
             Dept. of Education National Student Loan Data System
             Dept. of Education Easy Access for Students and 
             Institutions Project
             Census Bureau Post Enumeration Survey
             2000 Decennial Census
             Medicaid Program
             Supplemental Security Income Program
             CIM
             High Risk Series 1997
             IRS Tax System Modernization Program
             Superfund Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


High-Risk Series

February 1997

QUICK REFERENCE GUIDE

GAO/HR-97-2

Quick Reference Guide


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

  ATC - air traffic control
  BRAC - base realignment and closure
  CFO - Chief Financial Officer
  CIM - Corporate Information Management
  DBOF - Defense Business Operations Fund
  DCAA - Defense Contract Audit Agency
  DFAS - Defense Finance and Accounting Service
  DOD - Department of Defense
  DOE - Department of Energy
  DPS - Document Processing System
  EASI - Easy Access for Students and Institutions
  EFDS - Electronic Fraud Detection System
  EPA - Environmental Protection Agency
  FAA - Federal Aviation Administration
  FAIR - Federal Agriculture Improvement and Reform
  FDLP - Ford Direct Loan Program
  FFELP - Federal Family Education Loan Program
  HCFA - Health Care Financing Administration
  HMO - health maintenance organization
  HUD - Department of Housing and Urban Development
  IRM - information resources management
  IRS - Internal Revenue Service
  MTS - Medicare Transaction System
  NASA - National Aeronautics and Space Administration
  NWS - National Weather Service
  OIG - Office of Inspector General
  OMB - Office of Management and Budget
  QRP - Questionable Refund Program
  SADF - Seized Assets Deposit Fund
  SSA - Social Security Administration
  SSI - Supplemental Security Income
  SSN - Social Security Number
  USDA - Department of Agriculture

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



February 1997

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 its work identified as
high risk because of vulnerabilities to waste, fraud, abuse, and
mismanagement.  This effort, which was supported by the Senate
Committee on Governmental Affairs and the House Committee on
Government Reform and Oversight, brought a much-needed focus on
problems that were costing the government billions of dollars. 

In December 1992, GAO issued a series of reports on the fundamental
causes of problems in high-risk areas and in a second series in
February 1995, it reported on the status of efforts to improve those
areas.  This, GAO's third series of reports, provides the current
status of designated high-risk areas. 

This Quick Reference Guide provides summaries of the status of each
of the 20 areas we have tracked since our last report series and 5
areas that are newly designated as high-risk.  For each area, the
Guide outlines the problems, progress, and further actions needed;
identifies a key GAO contact person; and provides a list of related
GAO products.  Nineteen of the 25 high-risk areas are discussed in
more detail in 12 separate booklets that are also part of this
series. 

Copies of this report series are being sent to the President, the
congressional leadership, all other Members of the Congress, the
Director of the Office of Management and Budget, and the heads of
major departments and agencies. 

James F.  Hinchman
Acting Comptroller General
of the United States


DEFENSE FINANCIAL MANAGEMENT
============================================================ Chapter 0

The Department of Defense (DOD) needs accurate financial information
and appropriate internal controls to effectively manage the
Department's vast resources--over $1 trillion in assets, 3 million
military and civilian personnel, and a budget of an estimated $250
billion for fiscal year 1997.  However, long-standing, serious
weaknesses in the Department's financial operations continue not only
to severely limit the reliability of DOD's financial information, but
also have resulted in wasted resources and undermined the
Department's ability to carry out its stewardship responsibilities. 
No military service or other major DOD component has been able to
withstand the scrutiny of an independent financial statement audit. 
This situation is one of the worst in government and is the product
of years of neglect. 

The financial management weaknesses that the Department must overcome
fall into six areas:  (1) the lack of an overall integrated financial
management system structure, (2) no reliable means of accumulating
actual cost data to account for and manage resources, (3) continuing
problems in accurately accounting for billions of dollars in
disbursements, (4) the critical need to upgrade its financial
management workforce and organization, (5) breakdowns in rudimentary
required financial control procedures, and (6) antiquated
bureaucratic practices that underscore the need for progress in
reengineering business practices. 

The past few years have been marked by DOD's financial management
leadership, under the direction of the Department's Chief Financial
Officer (CFO), recognizing the importance of tackling the broad range
of problems in this area.  As a result, the importance of greater
financial accountability is now clearer throughout the Department. 
In laying out his "blueprint" for reforming the Department's
financial management, the Secretary took an important first step
towards resolving DOD's long-standing problems. 

DOD still has a long way to go to meet the challenges of managing its
vast and complex operations with the business-like efficiency
demanded by the Congress and the American public.  The reforms
mandated by the Chief Financial Officers Act of 1990, as expanded by
the Government Management Reform Act of 1994, and the Federal
Financial Management Improvement Act of 1996 serve as important
catalysts for focusing attention on the financial problems facing the
Department. 

It is now critical that DOD take the next steps in transforming its
leaders' candid acknowledgement of deficiencies into comprehensive,
realistic corrective actions.  It will take a focused, sustained
effort if DOD is to fully resolve these challenges.  The Department
has begun a number of initiatives intended to address its
long-standing financial management weaknesses. 

Additional information on DOD financial management problems and
progress can be found in a separate report issued as part of this
series (GAO/HR-97-3). 


   KEY CONTACT
---------------------------------------------------------- Chapter 0:1

Lisa G.  Jacobson, Director
Defense Financial Audits
Accounting and Information Management Division
202-512-9542


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 0:2

Financial Management:  DOD Inventory of Financial Management Systems
Is Incomplete (GAO/AIMD-97-29, Jan.  31, 1997). 

DOD Accounting Systems:  Efforts to Improve System for Navy Need
Overall Structure (GAO/AIMD-96-99, Sept.  30, 1996). 

Navy Financial Management:  Improved Management of Operating
Materials and Supplies Could Yield Significant Savings
(GAO/AIMD-96-94, Aug.  16, 1996). 

CFO Act Financial Audits:  Increased Attention Must Be Given to
Preparing Navy's Financial Reports (GAO/AIMD-96-7, Mar.  27, 1996). 

Financial Management:  Challenges Facing DOD in Meeting the Goals of
the Chief Financial Officers Act (GAO/T-AIMD-96-1, Nov.  14, 1995). 

Financial Management:  Challenges Confronting DOD's Reform
Initiatives (GAO/T-AIMD-95-146, May 23, 1995). 


DEFENSE CONTRACT MANAGEMENT
============================================================ Chapter 1

Improvement and simplification of the Department of Defense's (DOD)
contract payment system is imperative.  If DOD does not achieve
effective control over its payment process, the Defense Finance and
Accounting Service (DFAS) will continue to risk overpaying
contractors millions of dollars.  Further, failure to reform the
payment system perpetuates other financial management and accounting
control problems and increases the administrative burden of
identifying and correcting erroneous payments and their associated
costs.  DOD is aware of the seriousness of its payment problems and
is taking steps to address them. 

With improved contractor cost-estimating systems, DOD could reduce
the risk of overpricing and manage contracts more efficiently. 
Contractors' cost-estimating systems are a critical control for
ensuring sound price proposals.  Sound price proposals reduce the
risk that the government will pay excessive prices, and they permit
less government oversight and management attention.  DOD has improved
its oversight of contractors' cost-estimating systems, and some
improvement in contractor systems is indicated.  Nevertheless, poor
cost-estimating systems remain an area of concern at some
contractors' locations and require continued attention by contractors
and government contracting officials. 

Maintaining public support for defense programs requires that
potential fraud involving defense contractors be identified and dealt
with swiftly.  DOD has established a voluntary disclosure program to
encourage defense contractors to voluntarily disclose potential civil
or criminal procurement fraud to the government.  However, contractor
participation in the program has been relatively small and the dollar
recoveries modest.  Efforts to improve the administration of the
program, including the coordination between DOD and the Department of
Justice, may encourage program participation and improve dollar
recoveries. 

As is the case with many other elements of defense, contract
administration and audit resources have been reduced, and further
reductions are planned.  At the same time, DOD continues to look to
additional outsourcing opportunities, and it plans to significantly
increase its procurement budgets in the coming years.  Both these
actions may increase contracting actions and the need for effective
contract administration and audit.  As DOD seeks to reengineer and
streamline its contracting and acquisition processes, including
contract administration and audit, new business process techniques
will be key to accomplishing effective and efficient oversight in the
future. 

Additional information on DOD contract management problems and
progress can be found in a separate report issued as part of this
series (GAO/HR-97-4). 


   KEY CONTACT
---------------------------------------------------------- Chapter 1:1

Louis J.  Rodrigues, Director
Defense Acquisitions
National Security and International Affairs Division
202-512-4841


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 1:2

Defense Depot Maintenance:  Privatization and the Debate Over the
Public-Private Mix (GAO/T-NSIAD-96-146, Apr.  16, 1996). 

DOD Procurement:  Use and Administration of DOD's Voluntary
Disclosure Program (GAO/NSIAD-96-21, Feb.  6, 1996). 

DOD Procurement:  Millions in Contract Payment Errors Not Detected
and Resolved Promptly (GAO/NSIAD-96-8, Oct.  6, 1995). 

High-Risk Series:  Defense Contract Management (GAO/HR-95-3, Feb. 
1995). 

DOD Procurement:  Overpayments and Underpayments at Selected
Contractors Show Major Problem (GAO/NSIAD-94-245, Aug.  5, 1994). 

DOD Procurement:  Millions in Overpayments Returned by DOD
Contractors (GAO/NSIAD-94-106, Mar.  14, 1994). 


DEFENSE INVENTORY MANAGEMENT
============================================================ Chapter 2

The Department of Defense (DOD) uses its secondary inventory--spare
and repair parts, clothing, medical supplies, and other items--to
support its operating forces.  In September 1995, DOD reported that
it had a secondary inventory valued at $69.6 billion.  Based on DOD
data, we estimate that about half of the inventory includes items
that are not needed to be on hand to support DOD war reserve or
current operating requirements. 

In 1992, we reported that DOD had wasted billions of dollars on
excess supplies.  We reported that the problem resulted because
inherent in DOD's culture was the belief that it was better to
overbuy items than to manage with just the amount of stock needed. 
Had DOD used effective inventory management and control techniques
and modern commercial inventory management practices, it would have
had lower inventory levels and would have avoided the burden and
expense of storing excess inventory. 

In 1995, we reported that managing DOD's inventory presented
challenges that partially stemmed from the downsizing of the military
forces.  We reported that DOD needed to move aggressively to identify
and implement viable commercial practices and to provide managers
with modern, automated accounting and management systems to better
control and monitor its inventories. 

DOD has clearly had some success in addressing its inventory
management problems, but much remains to be done.  DOD has
implemented, in a limited manner, certain commercial practices such
as direct vendor delivery for medical and food items.  However, these
initiatives address only about 3 percent of the items for which this
concept could be used.  DOD is in the midst of changing its inventory
management culture.  Also, it has reduced its inventory since our
1995 high-risk report.  However, we believe that much of the
reduction was the result of reduced force levels, which reduced
overall demands on DOD's logistics systems. 

DOD has also made little progress in developing the management tools
needed to help solve its long-term inventory management problems.  It
has not achieved the desired benefits from the Defense Business
Operations Fund (DBOF), and the Corporate Information Management
(CIM) initiative has not produced the economies and efficiencies
anticipated.  In December 1996, the Defense Comptroller dissolved
DBOF and created separate Army, Navy, Air Force, and Defense-wide
working capital funds.  The four funds will continue to operate under
the revolving fund concept--using the same policies, procedures, and
systems as they did under DBOF. 

DOD has also abandoned its initial strategy to deploy a set of
integrated systems across all inventory control points and has
embarked on a strategy to deploy the systems individually at selected
sites without taking the steps necessary to ensure that the effort
brings positive results. 

As a result of the lack of progress with some of the key initiatives,
it has become increasingly difficult for inventory managers to manage
DOD's multibillion-dollar inventory supply system efficiently and
effectively.  Large amounts of unneeded inventory, inadequate
inventory oversight, overstated requirements, and slowness to
implement modern commercial practices are evidence of the lack of
progress. 

Unless DOD acts more aggressively, its inventory management problems
will continue into the next century. 

In the short term, DOD needs to emphasize the efficient operation of
its existing inventory systems.  This includes ensuring the accuracy
of inventory requirements to preclude the acquisition of unneeded
inventory.  It also needs to make greater use of proven commercial
practices where more immediate savings can be achieved. 

In the long-term, DOD must establish goals, objectives and milestones
for changing its culture and adopting new management tools and
practices.  These solutions include (1) setting aggressive milestones
for substantially expanding the use of modern commercial practices
and (2) providing managers with the tools--critical to managing
inventory efficiently--that it had planned to provide through the
DBOF and CIM initiatives.  DOD must also continue to explore other
alternatives such as using business case analysis to identify
opportunities for outsourcing logistics functions. 

At the same time, continued close congressional oversight is key to
helping to ensure that financial resources are not wasted through the
acquisition of additional inventories that are not needed and that
DOD obtains the tools necessary for efficient and effective inventory
management. 

Additional information on DOD inventory management problems and
progress can be found in a separate report issued as part of this
series (GAO/HR-97-5). 


   KEY CONTACT
---------------------------------------------------------- Chapter 2:1

David R.  Warren, Director
Defense Management
National Security and International Affairs Division
202-512-8412


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 2:2

1997 DOD Budget:  Potential Reductions to Operation and Maintenance
Program (GAO/NSIAD-96-220, Sept.  18, 1996). 

Defense IRM:  Critical Risks Facing New Materiel Management Strategy
(GAO/AIMD-96-109, Sept.  6, 1996). 

Navy Financial Management:  Improved Management of Operating
Materials and Supplies Could Yield Significant Savings
(GAO/AIMD-96-94, Aug.  16, 1996). 

Inventory Management:  Adopting Best Practices Could Enhance Navy
Efforts to Achieve Efficiencies and Savings (GAO/NSIAD-96-156, July
12, 1996). 

Best Management Practices:  Reengineering the Air Force's Logistics
System Can Yield Substantial Savings (GAO/NSIAD-96-5, Feb.  21,
1996). 

Inventory Management:  DOD Can Build on Progress in Using Best
Practices to Achieve Substantial Savings (GAO/NSIAD-95-142, Aug.  4,
1995). 

Defense Business Operations Fund:  Management Issues Challenge Fund
Implementation (GAO/NSIAD-95-79, Mar.  1, 1995). 

High-Risk Series:  Defense Inventory Management (GAO/HR-95-5, Feb. 
1995). 

Defense Supply:  Inventories Contain Nonessential and Excessive
Insurance Stocks (GAO/NSIAD-95-1, Jan.  20, 1995). 


DEFENSE WEAPON SYSTEMS ACQUISITION
============================================================ Chapter 3

The national Defense budget, measured in constant 1997 dollars, has
declined from a peak of $415.8 billion in fiscal year 1985 to $269.9
billion in fiscal year 1996--a reduction of about 35 percent.  A
large part of the reduction was in funding for the development and
procurement of new and improved weapon systems.  Nevertheless, the
Department of Defense (DOD) still spends about $79 billion annually
to research, develop, and acquire weapon systems.  While DOD's
expenditures have produced many of the world's most capable weapon
systems, its weapon system acquisition processes have often proved
costly and inefficient, if not wasteful. 

Despite DOD's past and current efforts to reform its acquisition
system, wasteful practices still add billions of dollars to Defense
acquisition costs.  Many new weapon systems cost more and do less
than anticipated, and schedules are often delayed.  Moreover, the
need for some of these costly weapons, particularly since the
collapse of the Soviet Union, is questionable.  DOD has perpetuated
its history of establishing questionable requirements for weapon
systems; projecting unrealistic cost, schedule, and performance
estimates; and beginning production before adequate testing has been
completed.  These problems have been discussed in more detail in our
cross-cutting reports entitled Weapons Acquisition:  A Rare
Opportunity for Lasting Change (GAO/NSIAD-93-15, Dec.  1992) and
Weapons Acquisition:  Low-Rate Initial Production Used to Buy Weapon
Systems Prematurely (GAO/NSIAD-95-18, Nov.  21, 1994) as well as in
our reports on individual programs.  (See Related GAO Products.)

DOD's leadership has emphasized its commitment to reforming its
system acquisition processes.  DOD's goal is to become the world's
smartest buyer, continuously reinventing and improving the
acquisition process while taking maximum advantage of emerging
technologies that enable business process reengineering.  In the area
of "what to buy," DOD's efforts are focusing on (1) greater reliance
on commercial products and processes and (2) more timely infusion of
new technology into new or existing systems.  In the area of "how to
buy," DOD's efforts have been directed at, among other things,
increasing teamwork and cooperation, encouraging risk management
rather than risk avoidance, reducing reporting requirements, and
reducing nonvalue-added layers of review and oversight.  In addition,
the Congress has passed a series of legislative reforms for the
system acquisition process. 

The ultimate effectiveness of DOD's current initiatives to reduce the
costs and improve the outcomes of its acquisition processes cannot
yet be fully assessed because they are in various stages of
implementation.  DOD is pursuing a number of positive initiatives
that should, over time, improve the cost-effectiveness of its
acquisition processes and is reporting some success in terms of cost
savings or avoidance and other benefits.  However, it may be several
years before tangible results can be documented and sustained. 

While these initiatives are commendable, DOD continues to (1)
generate and support acquisitions of new weapon systems that will not
satisfy the most critical weapon requirements at minimal cost and (2)
commit more procurement funds to programs than can reasonably be
expected to be available in future Defense budgets.  The fundamental
reforms needed to correct these problems, such as successfully
completing testing before beginning production, have not yet been
formulated, much less instituted, by DOD and the Congress.  However,
the likelihood of continuing fiscal constraints and reduced national
security threats provide additional incentives for real progress in
changing the structure and dominant culture of DOD's system
acquisition processes. 

Additional information on Defense weapon systems acquisition problems
and progress can be found in a separate report issued as part of this
series (GAO/HR-97-6). 


   KEY CONTACT
---------------------------------------------------------- Chapter 3:1

Louis J.  Rodrigues, Director
Defense Acquisitions
National Security and International Affairs Division
202-512-4841


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 3:2

Acquisition Reform:  Implementation of Title V of the Federal
Acquisition Streamlining Act of 1994 (GAO/NSIAD-97-22BR, Oct.  31,
1996). 

Combat Air Power:  Joint Mission Assessments Needed Before Making
Program and Budget Decisions (GAO/NSIAD-96-177, Sept.  20, 1996). 

Best Practices:  Commercial Quality Assurance Practices Offer
Improvements for DOD (GAO/NSIAD-96-162, Aug.  26, 1996). 

Navy Aviation:  F/A-18E/F Will Provide Marginal Operational
Improvement at High Cost (GAO/NSIAD-96-98, June 18, 1996). 

Acquisition Reform:  Efforts to Reduce the Cost to Manage and Oversee
DOD Contracts (GAO/NSIAD-96-106, Apr.  18, 1996). 

Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
Savings for Modernization (GAO/NSIAD-96-131, Apr.  4, 1996). 

Comanche Helicopter:  Testing Needs to be Completed Prior to
Production Decisions (GAO/NSIAD-95-112, May 18, 1995). 

Tactical Aircraft:  Concurrency in Development and Production of F-22
Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr.  19, 1995). 

High-Risk Series:  Defense Weapons Systems Acquisition (GAO/HR-95-4,
Feb.  1995). 

Electronic Warfare:  Most Air Force ALQ-135 Jammers Procured Without
Operational Testing (GAO/NSIAD-95-47, Nov.  22, 1994). 


DEFENSE INFRASTRUCTURE
============================================================ Chapter 4

Despite the Department of Defense's (DOD) actions over the last 7 to
10 years to reduce operations and support costs, billions of dollars
are wasted annually on inefficient and unneeded activities.  DOD has,
in recent years, substantially downsized its force structure. 
However, it has not achieved commensurate reductions in operations
and support costs.  For fiscal year 1997, DOD estimates that about
$146 billion, or almost two-thirds of its budget, will be for
operations and support activities.  These activities, which DOD
generally refers to as its support infrastructure, include
maintaining installation facilities, providing nonunit training to
the force, providing health care to military personnel and their
families, repairing equipment, and buying and managing spare part
inventories.  DOD is faced with transforming its Cold War operating
and support infrastructure in much the same way it has been working
to transform its military force structure.  Making this transition is
a complex, difficult challenge that will affect hundreds of thousands
of civilian and military personnel at activities in many states
across the nation. 

Reducing the cost of excess infrastructure activities is critical to
maintaining high levels of military capabilities.  Expenditures on
wasteful or inefficient activities divert limited Defense funds from
pressing defense needs.  For example, DOD has identified net
infrastructure savings as a funding source for modernization;
however, thus far, anticipated savings have not occurred.  As a
result, DOD has been unable to shift funds to modernization as
planned. 

DOD has found that infrastructure reductions are a difficult and
painful process because achieving significant cost savings requires
up-front investments, the closure of installations, and the
elimination of military and civilian jobs.  Service parochialism, a
cultural resistance to change, and congressional and public concern
about the effects on local communities and economies, as well as the
impartiality of the decisions, have historically hindered DOD's
ability to close or realign bases.  DOD has also recognized that
opportunities to streamline and reengineer its business practices
could result in substantial savings, but it has made limited progress
in accomplishing this. 

To its credit, DOD has programs to identify potential infrastructure
reductions in many areas.  However, breaking down cultural resistance
to change, overcoming service parochialism, and setting forth a clear
framework for a reduced Defense infrastructure are key to avoiding
waste and inefficiency.  To do this, the Secretary of Defense and the
service Secretaries need to give greater structure to their efforts
by developing an overall strategic plan.  The plan needs to establish
time frames and identify organizations and personnel responsible for
accomplishing fiscal and operational goals.  This plan needs to be
presented to the Congress in much the same way as DOD presented its
plan for force structure reductions in the Base Force Plan and the
Bottom-Up Review.  This will provide a basis for the Congress to
oversee DOD's plan for infrastructure reductions and allow the
affected parties to see what is going to happen and when.  In
developing the plan the Department should consider using a variety of
means to achieve reductions, including such things as consolidations,
privatization, outsourcing, reengineering, and interservicing
agreements.  It should also consider the need and timing for future
base realignment and closure (BRAC) rounds, as suggested by the 1995
BRAC Commission and other groups. 

Additional information on Defense infrastructure problems and
progress can be found in a separate report issued as part of this
series (GAO/HR-97-7). 


   KEY CONTACT
---------------------------------------------------------- Chapter 4:1

David R.  Warren, Director
Defense Management
National Security and International Affairs Division
202-512-8412


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 4:2

Air Force Depot Maintenance:  Privatization-In-Place Plans Are Costly
While Excess Capacity Exists (GAO/NSIAD-97-13, Dec.  31, 1996). 

Army Depot Maintenance:  Privatization Without Further Downsizing
Increases Costly Excess Capacity (GAO/NSIAD-96-201, Sept.  18, 1996). 

Navy Depot Maintenance:  Cost and Savings Issues Related to
Privatizing-in-Place at the Louisville, Kentucky, Depot
(GAO/NSIAD-96-202, Sept.  18, 1996). 

Defense Acquisition Infrastructure:  Changes in RDT&E Laboratories
and Centers (GAO/NSIAD-96-221BR, Sept.  13, 1996). 

Defense Infrastructure:  Costs Projected to Increase Between 1997 and
2001 (GAO/NSIAD-96-174, May 31, 1996). 

Military Bases:  Opportunities for Savings in Installation Support
Costs Are Being Missed (GAO/NSIAD-96-108, Apr.  23, 1996). 

Military Bases:  Closure and Realignment Savings Are Significant, But
Not Easily Quantified (GAO/NSIAD-96-67, Apr.  8, 1996). 

Defense Infrastructure:  Budget Estimates for 1996-2001 Offer Little
Savings for Modernization (GAO/NSIAD-96-131, Apr.  4, 1996). 

Defense Transportation:  Streamlining of the U.S.  Transportation
Command Is Needed (GAO/NSIAD-96-60, Feb.  22, 1996). 

Military Bases:  Analysis of DOD's 1995 Process and Recommendations
for Closure and Realignment (GAO/NSIAD-95-133, Apr.  14, 1995). 


IRS FINANCIAL MANAGEMENT
============================================================ Chapter 5

Our audits of the Internal Revenue Service's (IRS) financial
statements have outlined the substantial improvements needed in IRS'
accounting and reporting in order to comply fully with the
requirements of the Chief Financial Officers (CFO) Act of 1990.  The
audits for fiscal years 1992 through 1995 have described IRS'
difficulties in properly accounting for its reported $1.4 trillion in
tax revenues, in total and by reported type of tax; reliably
determining the amount of accounts receivable owed for unpaid taxes;
regularly reconciling its Fund Balance With Treasury accounts; and
either routinely providing support for receipt of the goods and
services it purchases or, where supported, accurately recording the
purchased item in the proper period. 

IRS has made progress in addressing these problems and has developed
an action plan, with specific timetables and deliverables, to address
the issues our financial statement audits have identified.  This is
particularly notable in IRS' administrative accounting operations,
which track its over $7 billion appropriation to fund IRS'
activities.  For example, IRS recently reported that it has
identified substantially all of the reconciling items for its Fund
Balance With Treasury accounts, except for certain amounts IRS has
deemed not to be cost-beneficial to research further.  It also has
successfully transferred its payroll processing to the Department of
Agriculture's National Finance Center and has begun designing both a
short-term and a long-term strategy to fix the problems that
contribute to its nonpayroll expenses being unsupported or reported
in the wrong period. 

Further, in the revenue accounting area, IRS has designed an interim
approach to capture the detailed support for revenue and accounts
receivable until longer-term solutions can be identified and
implemented.  The issues with IRS' revenue accounting operations are
complex, and the remedies needed are multifaceted and encompass
organizational, managerial, technological, and procedural
improvements.  IRS' revenue accounting problems are especially
affected and complicated by automated data processing systems that
were implemented many years ago and thus not designed to support the
financial reporting requirements ushered in by the 1990 CFO Act. 
Some of the longer-term actions needed to correct the long-standing
problems in IRS' revenue accounting operations include

  -- implementing software, hardware, and procedural changes needed
     to create reliable subsidiary accounts receivable and revenue
     records that are fully integrated with the general ledger and

  -- implementing software changes that allow the detailed taxes
     reported to be maintained separately from the results of
     compliance efforts that would not be valid financial reporting
     transactions in the masterfile, other related revenue accounting
     feeder systems, and the general ledger. 

The requirements of the CFO Act have provided the impetus for ongoing
efforts to improve IRS' operations.  They led to IRS' top managers
having a much better understanding than ever before of IRS' serious
accounting and reporting problems, provided information on the
magnitude of IRS' tax receivables collection problems, and identified
the need for stronger controls over such areas as payroll operations. 

IRS has made progress in responding to our recommendations.  Over the
past 4 years, we have made 59 recommendations to improve IRS'
financial management systems and reporting.  IRS agreed with these
recommendations and has been working to implement them and correct
its financial systems and information problems.  IRS has completed
action on some of these recommendations and has efforts under way to
address the remaining areas.  IRS has been directed in the
appropriations committees' conference report to submit a report by
March 1, 1997, that presents a plan to correct the problems
identified in our July 1996 audit report.  As part of our audit of
IRS' fiscal year 1996 financial statements, which was ongoing when
this report was being prepared, we are examining and will report on
the additional actions IRS has taken to respond to the
recommendations we have made. 

IRS' efforts are intended to position itself to have more reliable
financial statements for fiscal year 1997 and thereafter.  To
accomplish this, especially in accounting for revenue and the related
accounts receivables, IRS will need to institute longer term
solutions involving reprogramming software for IRS' antiquated
systems and developing new systems as required. 

Follow-through by IRS is essential to ensure that its short-term and
long-term plans are carried out and effectively solve financial
management problems.  While IRS' senior management has resolved to
address these issues, in the past IRS has not always provided the
follow-through needed to complete necessary corrective measures. 
Solving these problems is essential to providing reliable financial
information and ensuring taxpayers that their federal tax dollars are
properly accounted for in accordance with federal accounting
standards.  The accuracy of IRS' financial statements is also
essential to both IRS and the Congress for (1) ensuring adequate
accountability for IRS programs, (2) assessing the impact of tax
policies, and (3) measuring IRS' performance and cost effectiveness
in carrying out its numerous tax enforcement, customer service, and
collection activities. 

Additional information on IRS financial management problems and
progress can be found in a separate IRS management report issued as
part of this series (GAO/HR-97-8). 


   KEY CONTACT
---------------------------------------------------------- Chapter 5:1

Gregory M.  Holloway, Director
Governmentwide Audits
Accounting and Information Management Division
202-512-9510


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 5:2

IRS Financial Audits:  Status of Efforts to Resolve Financial
Management Weaknesses (GAO/T-AIMD-96-170, Sept.  19, 1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996). 

Financial Audit:  Actions Needed to Improve IRS Financial Management
(GAO/T-AIMD-96-96, June 6, 1996). 

IRS Operations:  Significant Challenges in Financial Management and
Systems Modernization (GAO/T-AIMD-96-56, Mar.  6, 1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1994 Financial
Statements (GAO/AIMD-95-141, Aug.  4, 1995). 

Financial Audit:  Examination of IRS' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-120, June 15, 1994). 

Financial Audit:  Examination of IRS' Fiscal Year 1992 Financial
Statements (GAO/AIMD-93-2, June 30, 1993). 


IRS RECEIVABLES
============================================================ Chapter 6

The Internal Revenue Service (IRS) is the government's primary tax
collection agency and routinely collects over a trillion dollars
annually.  But many taxpayers are either unable or unwilling to pay
their taxes when due and, as a result, IRS estimates that its
accounts receivable amount to tens of billions of dollars. 
Unfortunately, IRS' long-term efforts to efficiently and effectively
collect the billions of dollars taxpayers owe in delinquent taxes and
to prevent taxpayers from becoming delinquent have been seriously
hampered, primarily by outdated equipment and processes, incomplete
information needed to better target collection efforts, and the
absence of a comprehensive strategy and detailed plan that address
the systemic nature of the underlying problems. 

On the other hand, short-term results in collecting delinquent taxes
have shown some promise.  In fiscal year 1996, for example, IRS
reported the collection of $29.8 billion in delinquent taxes--the
most ever by IRS.  Furthermore, for the first time since 1989, IRS
also reported that its collection employees took in more money than
they classified as "currently not collectible." While these results
are encouraging, IRS needs to know more about its inventory of tax
assessments and the types of taxpayers who become delinquent each
year to develop effective strategies to efficiently target its
collection resources and to prevent future delinquencies. 

IRS' collection efforts have been hampered by the age of the
delinquent tax accounts.  Because of the outdated equipment and
processes used to match tax returns and related information
documents, it can take IRS several years to identify potential
delinquencies and then initiate collection actions.  In addition,
according to IRS, the 10-year statutory collection period generally
precludes it from writing off uncollectible receivables until that
period has expired.  As a result, the receivables inventory includes
many relatively old accounts that will never be collected because the
taxpayers are deceased or the companies defunct. 

IRS has undertaken many initiatives to deal with its accounts
receivable problems.  These initiatives include correcting errors in
the masterfile records of tax receivables, developing more
information on the makeup of the inventory of tax debts, developing
research systems to identify characteristics of delinquent taxpayers
and appropriate collection techniques, attempting telephone contact
earlier in the collection process, speeding up the collection process
for repeat delinquents, revising the format of bills sent to
delinquent taxpayers, automating many of the processes carried out by
collection employees in field offices, and attempting to collect
compliance-generated delinquencies earlier.  While some of these
efforts appear to have had some impact on collections and the tax
debt inventory, others are long term in nature, and their
effectiveness may not be determined for years.  Further, the problems
with IRS' data and information systems will continue to hinder its
ability to effectively measure the results of these efforts. 

The Congress has recently taken actions that could help deal with the
collection of delinquent taxes and the prevention of future
delinquencies.  Legislation requiring more electronic deposits of
employment taxes, expanding voluntary withholding, and authorizing
IRS to test the use of private debt collectors could help reduce
posting errors, prevent taxpayers from becoming delinquent, and
collect more money.  Other actions in areas such as tax delinquencies
related to independent contractors--a group of taxpayers that is
proportionately more delinquent than other groups of
taxpayers--could, if adopted, also help IRS deal with its collection
problems. 

Although the results cannot generally be quantified or traced back to
specific actions or improvements, some of IRS' efforts reportedly
have resulted in increased collections and reduced delinquencies in
the short term.  For example, during fiscal year 1996, IRS revised
the bills sent to taxpayers to make them clearer and easier to
understand, and reported that collections from the billing process
increased from $11.8 billion in fiscal year 1995 to $14.7 billion in
fiscal year 1996.  IRS has also placed more emphasis on collecting
examination assessments at the close of an audit, and preliminary
results have been favorable. 

Until fiscal year 1996, IRS' inventory of tax assessments increased
at a faster pace than collections.  For example, during the period
1991-1996, the inventory increased an average of 16 percent each
year, from $104 billion at the end of fiscal year 1991 to about $216
billion at the end of fiscal year 1996.  Reported collection of
delinquent taxes, however, averaged only a 4.5-percent increase, from
$24.3 billion to $29.8 billion, during that same period. 

We recognize that the growth in the gross inventory is not the best
measure of IRS' performance because it includes penalty and interest
charges that continue to accrue on delinquent accounts, potentially
invalid accounts, and accounts that are truly uncollectible; however,
better figures are not available.  IRS is working toward better
defining its receivables inventory.  For its fiscal year 1995
financial statements, IRS developed a methodology to differentiate
financial accounts receivable from the amounts it has assessed for
compliance purposes.  While the methodology appeared sound, mistakes
in performing the analysis and errors in the underlying data made the
sample results unreliable. 

A number of IRS initiatives hold some potential for future
improvements in both collections and compliance.  For example, IRS is
developing a number of research and evaluative tools that are
intended to determine the most efficient and effective way to handle
cases by identifying those taxpayer characteristics that could
predict the possible outcome of the cases.  In addition, research
databases are being constructed that are intended to allow for
identification of particular groups, and a research structure has
been developed to allow for studies dealing with different groups of
taxpayers.  However, the completion dates for full development of the
databases are currently unknown due to the uncertainty of funding for
IRS' Tax Systems Modernization program.  Even if funding was assured,
it would still take a number of years to identify the root causes of
delinquencies and to develop, test, and implement courses of action
to deal with the causes.  Once the analyses and planning are
completed, it will still be some time before full results of the new
initiatives are realized. 

Nevertheless, the recent increase in reported collections is a good
sign.  As previously mentioned, the $29.8 billion reported in fiscal
year 1996 is the most ever collected.  This sum represents a
19-percent increase over the $25.1 billion reported in fiscal year
1995 and a 17-percent increase over the $25.5 billion reported in
fiscal year 1990--the previous best year.  However, as we said
earlier, IRS does not have the data to determine which actions or
improvements generate changes in program performance such as this. 

Correcting the problems and improving collections will require
long-term and continuous efforts.  To ensure that these efforts are
on the right track, IRS needs a comprehensive strategy that involves
all aspects of IRS' operations.  As part of this strategy, IRS needs
to set priorities; modernize outdated equipment and processes; and
establish goals, timetables, and a system to measure progress. 

Additional information on IRS receivables problems and progress can
be found in a separate IRS management report issued as part of this
series (GAO/HR-97-8). 


   KEY CONTACT
---------------------------------------------------------- Chapter 6:1

Lynda D.  Willis, Director
Tax Policy and Administration
General Government Division
202-512-8633


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 6:2

IRS Tax Collection Reengineering (GAO/GGD-96-161R, Sept.  24, 1996). 

Tax Administration:  Tax Compliance of Nonwage Earners
(GAO/GGD-96-165, Aug.  28, 1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996). 

Tax Administration:  IRS Tax Debt Collection Practices
(GAO/T-GGD-96-112, Apr.  25, 1996). 

Status of Tax Systems Modernization, Tax Delinquencies, and the
Potential for Return-Free Filing (GAO/T-GGD/AIMD-96-88, Mar.  14,
1996). 

Financial Audit:  Examination of IRS' Fiscal Year 1994 Financial
Statements (GAO/AIMD-95-141, Aug.  4, 1995). 

Taxpayer Compliance:  Reducing the Income Tax Gap (GAO/T-GGD-95-176,
June 6, 1995). 

Tax Administration:  Administrative Improvements Possible in IRS'
Installment Agreement Program (GAO/GGD-95-137, May 2, 1995). 

High-Risk Series:  Internal Revenue Service Receivables (GAO/HR-95-6,
Feb.  1995). 


FILING FRAUD
============================================================ Chapter 7

When we first identified filing fraud as a high-risk area in February
1995, the amount of filing fraud being detected by the Internal
Revenue Service (IRS) was on an upward spiral.  From 1991 to 1994,
the number of fraudulent returns that IRS detected rose from 11,168
to 77,781, and the total amount of fraudulent refunds detected rose
from $42.9 million to $160.5 million.  In 1995, after being urged to
take immediate action by us, the Congress, and a Treasury task force,
IRS introduced new controls and expanded existing controls in an
attempt to reduce its exposure to filing fraud.  Those controls were
directed toward either (1) deterring the filing of fraudulent returns
or (2) identifying questionable returns after they have been filed. 

To deter the filing of fraudulent returns, IRS took several steps
that were focused on electronic filers.  As a result of these steps,
IRS (1) expanded the number of upfront filters in the electronic
filing system designed to screen electronic submissions for problems,
such as missing or incorrect Social Security Numbers (SSN), to
prevent returns with those problems from being filed electronically
and (2) strengthened the process for checking the suitability of
persons applying to participate in the electronic filing program as
return preparers or transmitters by requiring fingerprint and credit
checks. 

To better identify fraudulent returns once they have been filed, IRS
placed an increased emphasis in 1995 on validating SSNs on filed
paper returns and delayed any related refunds to allow time to do
those validations and to check for possible fraud.  IRS also improved
its Questionable Refund Program by (1) revising the computerized
formulas used to score all tax returns as to their fraud potential
and (2) upgrading the Electronic Fraud Detection System (EFDS) to
give staff better research capabilities. 

IRS' efforts produced some positive results.  For example, the number
of SSN problems identified by the electronic filing filters increased
from about 1 million in 1994 to about 4.1 million in 1995.  In
addition, about 350 persons who applied to participate in the
electronic filing program for 1995 were rejected because they failed
the new fingerprint and credit checks.  IRS' efforts to validate SSNs
on paper returns produced over $800 million in reduced refunds or
additional taxes.  Unfortunately, IRS identified many more SSN
problems than it was able to deal with and released about 2 million
refunds without resolving the problems. 

Despite the generally positive results, there is insufficient
information available to determine which of IRS' actions have had a
significant impact on either detecting or deterring filing fraud. 
IRS conducted some studies in 1995 and 1996 that may shed some light
on the effects of its changes and upgrades, but IRS has not released
the results of these studies. 

The number of fraudulent returns identified by IRS has declined
recently, from 77,781 fraudulent returns involving refunds of $160.5
million in 1994 to 62,309 fraudulent returns with refunds of $131.7
million in 1995.  That downward trend continued in 1996, at an even
more significant pace.  During the first 9 months of 1996, IRS
reported detecting 20,521 fraudulent returns involving refunds of
$55.4 million, compared with 59,241 returns totaling $124.8 million
in the first 9 months of 1995.  There is insufficient information
available to determine whether the decline was the result of staff
reductions, changes in the program's operating and reporting
procedures, or a general decline in the incidence of fraud. 

IRS' efforts to control filing fraud are also constrained by the
relatively short time available, after a return is filed and before
any refund is issued, in which to identify a questionable return. 
Therefore, it is critically important for IRS to (1) optimize the
controls, such as upfront filters, that are intended to prevent the
filing of fraudulent returns and (2) maximize the effectiveness of
available staff.  Modernization is the key to achieving these
objectives, and electronic filing is the cornerstone of that
modernization. 

As discussed previously, one of the benefits of electronic filing is
the ability to build controls into the system, in the form of
filters, that prevent returns with certain problems (such as
incorrect SSNs) from being filed electronically.  IRS cannot identify
those kinds of problems on paper returns until after the returns are
filed and, as happened in 1995, is limited in the number of cases it
can pursue by the number of staff available.  One solution to this
dilemma is to increase the percentage of returns filed
electronically.  IRS' business vision calls for increasing the number
of electronic returns to 80 million by 2001.  However, our analysis
of recent filing trends indicated that only about 33 million returns
are expected to be filed electronically by 2001.  To achieve its
goal, IRS must first identify those groups of taxpayers who offer the
greatest opportunity to reduce IRS' paper-processing workload and
operating costs if they were to file electronically.  IRS must then
develop strategies that focus its resources on eliminating or
lessening impediments that inhibit those groups from participating in
the program.  As of early January 1997, IRS was finalizing its
electronic filing strategy. 

EFDS enables IRS to use its staff more effectively by automating a
process that had been labor and paper intensive and by enhancing the
staff's research and query capabilities.  To date, EFDS has been used
primarily on electronic returns, which accounted for only about 13
percent of all individual income tax returns filed in 1996.  IRS had
planned to expand EFDS to all paper returns, but it is unclear how
those plans will be affected by IRS' recent decisions to terminate
its major paper processing modernization project (the Document
Processing System) and to consider other options for processing paper
returns. 

Additional information regarding filing fraud problems and progress
can be found in a separate IRS management report issued as part of
this series (GAO/HR-97-8). 


   KEY CONTACT
---------------------------------------------------------- Chapter 7:1

Lynda D.  Willis, Director
Tax Policy and Administration
General Government Division
202-512-8633


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 7:2

Earned Income Credit:  IRS' 1995 Controls Stopped Some Noncompliance,
But Not Without Problems (GAO/GGD-96-172, Sept.  18, 1996). 

IRS Efforts to Control Fraud (GAO/GGD-96-96R, Mar.  25, 1996). 

The 1995 Tax Filing Season:  IRS Performance Indicators Provide
Incomplete Information About Some Problems (GAO/GGD-96-48, Dec.  29,
1995). 

Tax Administration:  Electronic Filing Falling Short of Expectations
(GAO/GGD-96-12, Oct.  31, 1995). 

Tax Administration:  Continuing Problems Affect Otherwise Successful
1994 Filing Season (GAO/GGD-95-5, Oct.  7, 1994). 

Tax Administration:  Electronic Filing Fraud (GAO/T-GGD-94-89, Feb. 
10, 1994). 

Tax Administration:  Increased Fraud and Poor Taxpayer Access to IRS
Cloud 1993 Filing Season (GAO/GGD-94-65, Dec.  22, 1993). 

Tax Administration:  IRS Can Improve Controls Over Electronic Filing
Fraud (GAO/GGD-93-27, Dec.  30, 1992). 


IRS' TAX SYSTEMS MODERNIZATION
============================================================ Chapter 8

Over the last decade, the Internal Revenue Service (IRS) has been
attempting to overhaul its timeworn, paper-intensive approach to tax
return processing.  In 1995, we identified serious management and
technical weaknesses in the modernization program that jeopardize its
successful completion, recommended many actions to fix the problems,
and added IRS' modernization to our high-risk list.  Since then, IRS
and Treasury have together taken several steps to implement our
recommendations, but much remains to be done.  At stake is the over
$3 billion that IRS has spent or obligated on this modernization
since 1986, as well as any additional funds that IRS plans to spend
on modernization. 

In July 1995, we reported that IRS (1) did not have a comprehensive
business strategy to cost-effectively reduce paper tax return filings
and (2) had not yet fully developed and put in place the requisite
management, software development, and technical infrastructure
necessary to successfully implement its ambitious, world-class
modernization.  We also reported that IRS lacked an overall systems
architecture, or blueprint, to guide the modernization's development
and evolution. 

At that time, we made over a dozen recommendations to the IRS
Commissioner to address these weaknesses.  Collectively, the
recommendations called for IRS to (1) formulate a comprehensive
business strategy for maximizing electronic filings, (2) improve its
strategic information management by implementing a process for
selecting, prioritizing, controlling, and evaluating the progress and
performance of all major information systems and investments, (3)
implement disciplined, consistent procedures for software
requirements management, quality assurance, configuration management,
and project planning and tracking, and (4) complete and enforce an
integrated systems architecture and security and data architectures. 
IRS agreed to implement our recommendations. 

In May 1996, Treasury reported to the House and Senate Appropriations
Committees on steps under way and planned to exert greater management
oversight over IRS' modernization efforts.\1 For example, it
established a Modernization Management Board as the primary review
and decision-making body for modernization and for policy and
strategic direction.  In addition, Treasury scaled back the overall
size of the modernization by approximately $2 billion and is working
with IRS to obtain additional contractor help to accomplish the
modernization. 

Pursuant to congressional direction, we assessed IRS' actions to
correct its management and technical weaknesses, as delineated in
Treasury's report on tax systems modernization.  We reported in June
and September 1996 that IRS had initiated many activities to improve
its modernization efforts, but had not yet fully implemented any of
our recommendations.  Consequently, in order to minimize the risk
attached to continued investment in its systems modernization, we
suggested to the Congress that it consider limiting modernization
funding exclusively to cost-effective efforts that (1) support
ongoing operations and maintenance, (2) correct IRS' pervasive
management and technical weaknesses, (3) are small, represent low
technical risk, and can be delivered quickly, and (4) involve
deploying already developed and fully tested systems that have proven
business value and are not premature given the lack of a completed
architecture. 

To help oversee IRS' modernization, the Congress in the fiscal year
1997 Omnibus Consolidated Appropriations Act\2 directed IRS to (1)
submit by December 1, 1996, a schedule for transferring a majority of
its modernization development and deployment to contractors by July
31, 1997, and (2) establish a schedule by February 1, 1997, for
implementing our recommendations by October 1, 1997.  In its
conference report on the act, the Congress directed the Secretary of
the Treasury to (1) provide quarterly reports on the status of IRS'
corrective actions and modernization spending\3 and (2) submit by May
15, 1997, a technical architecture for the modernization that has
been approved by Treasury's Modernization Management Board. 
Additionally, the Board was directed to prepare a request for
proposals by July 31, 1997, to acquire a prime contractor to manage
modernization deployment and implementation. 

IRS has continued to take steps to address our recommendations and
respond to congressional direction.  For example, IRS hired a new
Chief Information Officer.  It also created an investment review
board to select, control, and evaluate its information technology
investments.  Thus far, the board has reevaluated and terminated
selected major modernization development projects, such as the
Document Processing System. 

Additionally, IRS (1) provided a November 26, 1996, report to the
Congress that set forth IRS' strategic plan and schedule for shifting
modernization development and deployment to contractors, (2) is
finalizing a comprehensive strategy to maximize electronic filing
that is scheduled for completion in early 1997, and (3) is updating
its system development life cycle methodology and working across
various IRS organizations to define disciplined processes for
software requirements management, quality assurance, configuration
management, and project planning and tracking.  Additionally, IRS is
developing a technical architecture for the modernization and plans
to provide this to the Congress by May 15, 1997.  Further, IRS is
preparing a schedule for implementing our recommendations and plans
to provide it to the Congress in February 1997. 

While we recognize IRS' and Treasury's actions to address these
problems, we remain concerned.  Much remains to be done to fully
implement essential improvements.  Increasing the use of contractors,
for example, will not automatically increase the likelihood of
successful modernization because IRS does not have the technical
capability needed to manage all of its current contractors.  As a
case in point, IRS' Cyberfile--a system development effort led by
contractors to enable taxpayers to personally prepare and file their
tax returns electronically--exhibited many undisciplined software
acquisition practices as well as inadequate financial and management
controls.  Eventually, IRS canceled the Cyberfile project after
spending over $17 million and without fielding any of the system's
promised capabilities.  Therefore, if IRS is to use additional
contractors effectively, it will have to first strengthen and improve
its ability to manage those contractors. 

In addition, IRS needs to continue to make concerted, sustained
efforts to fully implement our recommendations and respond
effectively to the requirements outlined by the Congress.  It will
take both management commitment and technical discipline for IRS to
do this effectively.  Accordingly, we plan to continue assessing IRS'
progress in its critical endeavor to modernize. 

Additional information on tax systems modernization problems and
progress can be found in separate IRS management and information
management and technology reports issued as part of this series
(GAO/HR-97-8 and GAO/HR-97-9, respectively). 


--------------------
\1 Report to House and Senate Appropriations Committees:  Progress
Report on IRS's Management and Implementation of Tax Systems
Modernization, Department of the Treasury, May 6, 1996. 

\2 Public Law 104-208, September 30, 1996. 

\3 H.R.  Report No.  863, 104th Cong., 2d sess.  (1996).  Congress
also included the requirement that Treasury provide a milestone
schedule for developing and implementing all modernization projects
in Treasury's fiscal year 1996 appropriations act (Public Law 104-52,
Nov.  19, 1995). 


   KEY CONTACT
---------------------------------------------------------- Chapter 8:1

Dr.  Rona B.  Stillman
Chief Scientist for Computers and Telecommunications
Accounting and Information Management Division
202-512-6412


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 8:2

Tax Systems Modernization:  Actions Underway But Management and
Technical Weaknesses Not Yet Corrected (GAO/T-AIMD-96-165, Sept.  10,
1996). 

IRS Operations:  Critical Need to Continue Improving Core Business
Practices (GAO/T-AIMD/GGD-96-188, Sept.  10, 1996). 

Internal Revenue Service:  Business Operations Need Continued
Improvement (GAO/AIMD/GGD-96-152, Sept.  9, 1996). 

Tax Systems Modernization:  Cyberfile Project Was Poorly Planned and
Managed (GAO/AIMD-96-140, Aug.  26, 1996). 

Tax Systems Modernization:  Actions Underway But IRS Has Not Yet
Corrected Management and Technical Weaknesses (GAO/AIMD-96-106, June
7, 1996). 

Tax Systems Modernization:  Management and Technical Weaknesses Must
Be Corrected If Modernization Is To Succeed (GAO/AIMD-95-156, July
26, 1995). 

IRS Automation:  Controlling Electronic Filing Fraud and Improper
Access to Taxpayer Data (GAO/T-AIMD/GGD-94-183, July 19, 1994). 


CUSTOMS SERVICE FINANCIAL
MANAGEMENT
============================================================ Chapter 9

In 1991, we added the U.S.  Customs Service to our high-risk list
because it had major weaknesses in its management and organizational
structure that diminished its ability to detect trade violations on
imported cargo; collect applicable duties, taxes, fees, and
penalties; control financial resources; and report on financial
operations.  In February 1995, we reported that Customs had taken
several actions to address these problems, including aggressively
pursuing delinquent receivables and embarking on an agencywide
reorganization plan.  We also reported in 1995 that such actions
should reduce Customs' risks in the general management arena but that
additional efforts were still needed in the financial management
area.  As such, we reported that the scope of our future high-risk
work at Customs would focus on its financial management problems. 

Since our 1995 report, Customs has continued to take actions to
address these financial management problems.  For example, during
fiscal year 1995, Customs statistically sampled compliance of
commercial importations through ports of entry to better focus
enforcement efforts and to project and report lost duties, taxes, and
fees due to noncompliance.  It also developed a methodology to
estimate and disclose the liability for future claims for drawback
payments\1 and other refunds.  In addition, Customs reorganized its
Office of Finance and established financial advisor positions in key
organizational units to more effectively meet financial management
responsibilities.  Further, Customs has taken meaningful steps toward
correcting its computer access problems. 

While these actions have resulted in progress, Customs still has not
fully corrected significant weaknesses in its financial management
and internal control systems which have diminished Customs' ability
to reasonably ensure that

  -- duties, taxes, and fees on imports would be properly assessed
     and collected and refunds of such amounts would be valid;

  -- sensitive data maintained in its automated systems, such as
     import inspection criteria and law enforcement data, were
     adequately protected from unauthorized access and modification;
     and

  -- its core financial systems capture all activities that occurred
     during the year and provide reliable information for management
     to use in controlling operations. 

For instance, in June 1994\2 we reported that Customs did not have a
reliable means of measuring overall compliance with trade laws,
including those related to the importation of goods by way of ports
of entry, in-bond shipments, foreign trade zones, and bonded
warehouses.  As previously stated, Customs conducted a comprehensive
compliance measurement program for goods imported at ports of entry. 
However, it still needs to fully develop and implement such programs
for the other areas noted above.  In April 1996, the Treasury Office
of Inspector General (OIG) reported that until Customs fully
implements such programs, it will continue to lack adequate assurance
that all revenue due is collected and compliance with trade laws is
achieved. 

In June 1994, we also reported that Customs could not reliably detect
and prevent duplicate and excessive drawback payments and lacked
integrated core financial systems.  In April 1996, the OIG reaffirmed
that weaknesses still existed in these areas. 

Over the past several years, we and the OIG have made numerous
recommendations to Customs to address its financial management
problems and have assisted Customs in developing and implementing
corrective actions.  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 Drawback payments are refunds of duties and taxes paid on imported
goods that are subsequently exported or destroyed. 

\2 Financial Audit:  Examination of Customs' Fiscal Year 1993
Financial Statements (GAO/AIMD-94-119, June 15, 1994). 


   KEY CONTACT
---------------------------------------------------------- Chapter 9:1

Gregory M.  Holloway, Director
Governmentwide Audits
Accounting and Information Management Division
202-512-9510


   RELATED GAO PRODUCTS
---------------------------------------------------------- Chapter 9:2

Customs Service Modernization:  Strategic Information Management Must
Be Improved for National Automation Program to Succeed
(GAO/AIMD-96-57, May 9, 1996). 

High-Risk Series:  Quick Reference Guide (GAO/HR-95-2, Feb.  1995). 


ASSET FORFEITURE PROGRAMS
=========================================================== Chapter 10

Federal asset forfeiture programs at the U.S.  Customs Service and
the Justice Department (administered by the U.S.  Marshals Service)
were part of our original high-risk list in 1990 because the
programs--with inventories valued at about $2 billion in 1995--did
not adequately focus on managing the items seized.  In December 1992,
we reported that the existence of major operational problems,
relating to the management and disposition of seized and forfeited
property, had been identified and that corrective actions were being
initiated.  In our February 1995 high-risk report, we reported that
although much had been accomplished and some management and systems
changes had improved program operations, some significant problems
remained with seized property management. 

Specifically, the 1995 high-risk report noted that our fiscal years
1992 and 1993 financial statement audits of Customs 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.\1 As a result, as we reported, tons of illegal drugs
and millions of dollars of currency and other property have been
vulnerable to theft and misappropriation.\2 We also reported that the
Marshals Service lacked effective oversight of real property
management contracts and was not disposing of forfeited property
expeditiously, allowing property to deteriorate with a resulting loss
of revenue. 

Since the 1995 report, Customs has initiated several actions to
address these problems, including continuing to upgrade existing
security at storage facilities and developing a new seized-property
inventory system, which Customs anticipates will be fully implemented
in fiscal year 1997.  This new system is intended to provide improved
controls and audit trails.  While progress has been made, Treasury
and Justice still have not fully corrected their seized property and
internal control weaknesses.  For instance, in February 1996, the
Treasury Office of Inspector General (OIG) reported that significant
errors in recorded quantities were identified during Customs' 1995
fiscal year- end physical inventory, including (1) seized property
items on hand but not recorded in the tracking system and (2) seized
property items recorded in the tracking system but not on hand.  It
also reported instances where weights of seized narcotics on hand
were less than the recorded weights.  In addition, the Treasury OIG
reported that Customs' seized property tracking system lacked an
audit trail of changes made to quantities, values, and status of
seizures.  The OIG stated that, as a result, it was possible for
users to make changes to the data to disguise a loss or theft of
seized property, without a record of who made the change.  It will
take time to determine whether the new seized-property inventory
system will prevent these types of problems. 

In June 1996, we reported on internal control weaknesses over
disbursements and transfers made during the period 1993-1995 from the
Seized Assets Deposit Fund at one of the largest Marshals Service
districts, the Central District of California.  Weaknesses included
disbursements and transfers that were not properly authorized or were
authorized after the transaction occurred, and a lack of adequate
segregation of duties over the disbursement process.  We also
reported on inadequate management of seized real property, including
instances where property deteriorated because of inadequate
maintenance and mortgages were paid late.  Because of these property
management problems, the government has incurred unnecessary losses. 
For example, the roof of an 18-unit apartment building seized by the
government in 1991 suffered serious maintenance problems while in the
Marshals Service's possession, thereby exposing the government to
potential liabilities to tenants.  Three years after the seizure, the
property was turned over to the lienholder at a loss to the federal
government of approximately $105,000.  The Marshals Service is in the
process of taking action to enhance oversight of seized assets and to
improve time frames for property disposition. 

Legislation enacted in 1988 required Justice and Customs to develop a
plan to consolidate postseizure administration of certain
properties.\3 In June 1991, we recommended that Justice and Customs
consolidate the postseizure management and disposition of all noncash
seized properties.  Our limited review at that time indicated that by
doing so program administration costs could be reduced 11 percent
annually.  In addition, consolidation would likely result in lower
contractor costs due to economies of scale.  In our February 1995
high-risk report, we reported that although a small scale pilot
project for consolidation was in effect from October 1992 through
September 1993, Justice and Treasury had not made significant
progress towards consolidation of property management functions.  In
November 1994, the Marshals Service reported the costs and proceeds
associated with the assets in the pilot project.  However, the report
did not contain a comparison of what costs would have been had the
assets not been consolidated.  Hence, there was no way to determine
the effectiveness of the pilot project from the information provided. 

The House Appropriations Committee stated in a July 19, 1995, report
that "the consolidation of asset management and disposition functions
of Justice and Treasury could address duplication and provide cost
savings to the management and disposal process." The report added
that the Committee expected Justice to review the feasibility of
consolidating contracts with vendors for both the Marshals Service
and Treasury agencies.\4 However, no such review had been initiated
as of October 1996.  Justice and Treasury officials indicated that
there were no plans for consolidation of asset management and
disposition functions. 

According to Justice and Treasury, legislation that established a
separate Treasury Forfeiture Fund in 1992\5 complicated the potential
for consolidation.  Prior to the creation of the Treasury Fund, three
Treasury agencies participated in Justice's asset forfeiture program,
while Customs maintained its own fund.  Since the creation of the
Treasury Fund, all Treasury bureaus have joined Customs in
establishing a separate Treasury property management and disposal
program.  Possible duplication of resources within the two forfeiture
funds and programs is of particular interest in light of budget
constraints.  Thus, we continue to believe that consolidation of
asset management and disposition functions makes sense and that the
existence of the Treasury Fund does not negate the potential benefits
of consolidation. 

In summary, Justice and Treasury have made many improvements to their
asset forfeiture programs over the years.  However, significant
enhancements to internal controls and property management are still
needed in order to effectively reduce the vulnerability to theft and
misappropriation of seized property, including tons of illegal drugs
and millions of dollars of cash and real property.  In addition,
Justice and Treasury should aggressively pursue options for
efficiency gains through consolidation.  We will continue to monitor
Justice's and Treasury's progress in addressing these issues. 


--------------------
\1 The Congress established the Department of the Treasury Forfeiture
Fund in October 1992 to supersede the Customs Fund.  Customs is
responsible for managing property seized by Treasury law enforcement
agencies. 

\2 Seized property includes illegal drugs which have no resale value
to the federal government.  These items are subject to forfeiture and
are typically held by the seizing agency until they are approved for
destruction. 

\3 The Anti-Drug Abuse Act of 1988, P.L.  100-690, 21 U.S.C.  887
(1988). 

\4 Departments of Commerce, Justice, and State, The Judiciary, and
Related Agencies Appropriations Bill, Fiscal Year 1996, H.R.  Rep. 
No.  104-196, 104th Cong., 1st Sess.  20 (1995). 

\5 Treasury Forfeiture Fund Act of 1992, P.  L.  No.  102-393, 31
U.S.C.  9703 (1992). 


   KEY CONTACT
--------------------------------------------------------- Chapter 10:1

Laurie E.  Ekstrand, Associate Director
Administration of Justice Issues
General Government Division
202-512-8777


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 10:2

Pre-seizure Planning (GAO/GGD-97-19R, Nov.  20, 1996). 

Review of SADF Disbursements (GAO/AIMD-96-114R, June 26, 1996). 

Asset Forfeiture:  Historical Perspective on Asset Forfeiture Issues
(GAO/T-GGD-96-40, Mar.  19, 1996). 

High-Risk Series:  Asset Forfeiture Programs (GAO/HR-95-7, Feb. 
1995). 


FAA'S AIR TRAFFIC CONTROL
MODERNIZATION
=========================================================== Chapter 11

Faced with rapidly growing air traffic volumes and aging air traffic
control equipment, the Federal Aviation Administration (FAA) in 1981
initiated an ambitious air traffic control (ATC) modernization
program.  This effort, which is expected to cost $34 billion through
fiscal year 2003, mostly involves investments in a multitude of
software-intensive computer systems. 

Over the past 15 years, the modernization program has experienced
cost overruns, schedule delays, and performance shortfalls of large
proportions--particularly in the $7.6 billion former centerpiece of
the modernization known as the Advanced Automation System, which FAA
restructured in 1994.  The acquisition of that system failed because
FAA did not recognize the technical complexity of the effort,
realistically estimate the resources required, adequately oversee its
contractors' activities, or effectively control system requirements. 
With $11 billion planned to be spent on the ATC program from fiscal
years 1998 through 2003, and billions more surely to follow, it is
critical that FAA overcome the weaknesses that threaten the effort. 

FAA has made progress in acquiring an interim replacement for its
outage-plagued system that processes data into displayable images on
controllers' screens.  Although key acquisition milestones, events,
and risks remain, FAA is currently on track to deliver promised
capabilities ahead of schedule and within budget.  Further, when we
recommended that two risks associated with system testing--contention
for human test resources and test baseline configuration change
control--be formally managed, FAA officials agreed to do so. 

In spite of this progress, FAA still faces formidable challenges. 
For example, the many systems comprising the modernization effort
have long proceeded without a complete systems architecture, or
overall blueprint, to guide development and evolution.  The result
has been unnecessarily high spending to buy, integrate, and maintain
hardware and software.  Also exacerbating the modernization's
problems is unreliable cost information--both future estimates of
costs and accumulations of actual costs.  The lack of adequate cost
estimating processes and cost accounting practices needed to measure
actual cost performance against cost estimates leaves FAA at risk of
making ill-informed decisions on critical multimillion, even billion,
dollar ATC systems. 

Additionally, FAA still needs to address problems in its
organizational culture, which does not reflect a strong enough
commitment to mission focus, accountability, coordination, and
adaptability.  Without strong leadership to promote the desired
organizational behavior, the modernization effort's problems will be
difficult to overcome. 

To further pinpoint the root causes of FAA's modernization problems,
we have one review underway to determine whether FAA's software
acquisition capability is sufficiently mature to successfully
modernize the highly complex, real-time ATC system. 

Additional information on air traffic control modernization problems
and progress can be found in a separate information management and
technology report issued as part of this series (GAO/HR-97-9). 


   KEY CONTACT
--------------------------------------------------------- Chapter 11:1

Dr.  Rona B.  Stillman
Chief Scientist for Computers and Telecommunications
Accounting and Information Management Division
202-512-6412


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 11:2

Air Traffic Control:  Complete and Enforced Architecture Needed for
FAA Systems Modernization (GAO/AIMD-97-30, Feb.  3, 1997). 

Air Traffic Control:  Improved Cost Information Needed to Make
Billion Dollar Modernization Investment Decisions (GAO/AIMD-97-20,
Jan.  22, 1997). 

Air Traffic Control:  Good Progress on Interim Replacement for
Outage-Plagued System, But Risks Can Be Further Reduced
(GAO/AIMD-97-2, Oct.  17, 1996). 

Aviation Acquisition:  A Comprehensive Strategy Is Needed for
Cultural Change at FAA (GAO/RCED-96-159, Aug.  22, 1996). 

Air Traffic Control:  Status of FAA's Modernization Program
(GAO/RCED-95-175FS, May 26, 1995). 

Advanced Automation System:  Implications of Problems and Recent
Changes (GAO/T-RCED-94-188, Apr.  13, 1994). 


DEFENSE'S CORPORATE INFORMATION
MANAGEMENT INITIATIVE
=========================================================== Chapter 12

The Department of Defense's Corporate Information Management (CIM)
initiative, started in 1989, was expected to save billions of dollars
by streamlining operations and implementing standard information
systems supporting such important business areas as supply
distribution, materiel management, personnel, finance, and
transportation.  However, 8 years after beginning CIM, and after
spending about $20 billion, Defense's savings goal has not been met
because the Department has not yet implemented sound management
practices. 

We have made numerous recommendations for improving the Department's
management of CIM, including (1) linking system modernization
projects more strongly to business process improvement efforts, (2)
establishing plans, performance measures, and clearly defined roles
and responsibilities for implementing CIM, (3) improving controls
over information technology investments, and (4) not initiating
system improvement projects without sound economic and technical
analyses. 

But Defense has yet to successfully implement these recommendations. 
Instead, it continues to spend billions of dollars on system
migration projects with little sound analytical justification.\1
Specifically, Defense is making system migration decisions without
(1) appropriately analyzing costs, benefits, and technical risks, (2)
establishing realistic project schedules, or (3) considering how
process improvements could affect technology investments.  Further,
in some cases, Defense has denied its own decisionmakers the
opportunity to evaluate the progress of technology investments over
time by forgoing its established oversight process. 

Not surprisingly, Defense's major technology investments have yielded
low returns in terms of reducing operational costs.  Nevertheless,
the Department estimates that it will spend more than an additional
$11 billion on system migration projects between now and the year
2000.  As part of its Clinger-Cohen Act implementation efforts, the
Department is establishing a framework for better managing this
investment.  However, these actions are just beginning. 

We have ongoing and planned work--
including reviews of the Department's systems modernization strategy
and investment controls--aimed at helping Defense managers make
better business decisions based on an accurate picture of the costs
of technology investments, their related benefits, and an
appreciation for how they fit into the Department's long-term and
short-term goals. 

Additional information on Defense's Corporate Information Management
initiative problems and progress can be found in a separate
information management and technology report issued as part of this
series (GAO/HR-97-9). 


--------------------
\1 A migration system is an automated information system which
replaces several systems that perform similar functions. 


   KEY CONTACT
--------------------------------------------------------- Chapter 12:1

Jack L.  Brock, Jr., Director
Defense Information and Financial Management Systems
Accounting and Information Management Division
202-512-6240


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 12:2

Defense IRM:  Strategy Needed for Logistics Information Technology
Improvement Efforts (GAO/AIMD-97-6, Nov.  14, 1996). 

DOD Accounting Systems:  Efforts to Improve Systems for Navy Need
Overall Structure (GAO/AIMD-96-99, Sept.  30, 1996). 

Defense IRM:  Critical Risks Facing New Materiel Management Strategy
(GAO/AIMD-96-109, Sept.  6, 1996). 

Defense Transportation:  Migration Systems Selected Without Adequate
Analysis (GAO/AIMD-96-81, Aug.  29, 1996). 

Defense Management:  Selection of Depot Maintenance Standard System
Not Based on Sufficient Analyses (GAO/AIMD-95-110, July 13, 1995). 

Defense Management:  Impediments Jeopardize Logistics Corporate
Information Management (GAO/NSIAD-95-28, Oct.  21, 1994). 

Defense Management:  Stronger Support Needed for Corporate
Information Management Initiative to Succeed (GAO/AIMD/NSIAD-94-101,
Apr.  12, 1994). 


NATIONAL WEATHER SERVICE'S
MODERNIZATION
=========================================================== Chapter 13

Promising better weather forecasts and downsized operations, the
National Weather Service (NWS) has been acquiring new observing
systems--such as radars, satellites, ground-based sensors, and
powerful forecaster workstations--at a combined cost of about $4.5
billion.  NWS has found that the new radars and satellites have
improved forecasts and warnings but acknowledges that key problems
confront the new systems. 

While the development and deployment of the observing systems
associated with NWS' modernization are nearing completion, unresolved
issues still remain concerning the observing systems' operational
effectiveness and efficient maintenance, such as performance problems
with the new radars and ground-based sensors.  We recommended that
NWS correct shortfalls in radar performance and define and prioritize
all ground-based sensor corrections needed to meet user needs.  NWS
addressed some of our concerns, but others remain. 

We also recently reported that NWS has not managed this massive
investment through sound decisionmaking processes.  For instance, NWS
lacks a means by which to ensure that systems provide promised
returns on investments.  Also, NWS has not demonstrated that all
proposed capabilities will result in mission improvements, thereby
increasing the risk that spending will be wasted on unneeded system
capabilities.  For example, the forecaster workstations that will
integrate observing systems' data and support forecaster
decisionmaking are far from providing all promised capabilities. 

In 1996, we made several recommendations that, if implemented, will
strengthen NWS' ability to manage the acquisition of these
workstations.  Specifically, NWS should

  -- validate all workstation requirements on the basis of mission
     impact,

  -- improve its process to test software,

  -- establish a software quality assurance program, and

  -- obtain an independent cost assessment since NWS does not have
     reliable project cost information. 

As we reported in our 1995 high-risk series, the modernization and
evolution of this major systems initiative has long begged for a
guiding systems architecture.  NWS has acknowledged that this
technical blueprint is needed and is currently developing one to
address our March 1994 recommendation to do so.  In the meantime,
however, NWS will continue to incur higher system development and
maintenance costs and reduced performance. 

Additional information on NWS' modernization problems and progress
can be found in a separate information management and technology
report issued as part of this series (GAO/HR-97-9). 


   KEY CONTACT
--------------------------------------------------------- Chapter 13:1

Joel Willemssen, Director
Information Resources Management
Accounting and Information Management Division
202-512-6408


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 13:2

Weather Forecasting:  Recommendations to Address New Weather
Processing System Development Risks (GAO/AIMD-96-74, May 13, 1996). 

Weather Forecasting:  NWS Has Not Demonstrated That New Processing
System Will Improve Mission Effectiveness (GAO/AIMD-96-29, Feb.  29,
1996). 

Weather Forecasting:  Radar Availability Requirements Not Being Met
(GAO/AIMD-95-132, May 31, 1995). 

Weather Forecasting:  Unmet Needs and Unknown Costs Warrant
Reassessment of Observing System Plans (GAO/AIMD-95-81, Apr.  21,
1995). 

Weather Forecasting:  Improvements Needed in Laboratory Software
Development Processes (GAO/AIMD-95-24, Dec.  14, 1994). 

Weather Forecasting:  Systems Architecture Needed for National
Weather Service Modernization (GAO/AIMD-94-28, Mar.  11, 1994). 


INFORMATION SECURITY
=========================================================== Chapter 14

Attacks on computer systems are an increasing threat to our national
welfare.  Many federal operations that rely on computer networks are
attractive targets for individuals or organizations with malicious
intentions.  Such operations include law enforcement, import entry
processing, taxpayer accounts, various financial transactions,
payroll, defense operational plans, electronic benefit payments, and
electronically submitted Medicare claims. 

System interconnectivity, combined with poor security management, is
putting billions of dollars worth of federal assets at risk of loss
and vast amounts of sensitive data at risk of unauthorized
disclosure.  In addition, the increasing reliance on networked
systems and electronic records has elevated concerns that critical
federal operations are vulnerable to serious disruption.  Although
such disruption could be precipitated by natural disasters or
accidents, there is evidence that some organizations are developing
strategies and tools for conducting premeditated attacks on
information systems. 

Despite their sensitivity and criticality, federal systems and data
are not being adequately protected.  Since June 1993, we have issued
over 30 reports describing serious information security weaknesses at
major federal agencies.  For example, in September 1996, we reported
that during the previous 2 years, serious information security
control weaknesses had been reported for 10 of the 15 largest federal
agencies. 

Several problems need to be addressed to help ensure that federal
agencies adequately protect their systems and data.  These include
(1) insufficient awareness and understanding of information security
risks among senior agency officials, (2) poorly designed and
implemented security programs that do not adequately monitor controls
or proactively address risk, and (3) a shortage of personnel with the
training and technical expertise needed to manage security controls
in today's sophisticated information technology environment. 

In light of the increasing importance of information security,
stronger central leadership from the Office of Management and Budget
(OMB) is needed.  As chair of the Chief Information Officer's
Council, OMB should encourage council members to pursue information
security as one of their top priorities and develop a strategic plan
for addressing the root causes of agency security problems.  Such a
plan could include (1) developing information on existing and
emerging information security risks and (2) establishing a program
for using interagency teams to review individual agency security
programs and training. 

Additional information on information security problems and progress
can be found in a separate information management and technology
report issued as part of this series (GAO/HR-97-9). 


   KEY CONTACT
--------------------------------------------------------- Chapter 14:1

Jack L.  Brock, Jr., Director
IRM/Policies and Issues
Accounting and Information Management Division
202-512-6240


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 14:2

Information Security:  Opportunities for Improved OMB Oversight of
Agency Practices (GAO/AIMD-96-110, Sept.  24, 1996). 

Information Security:  Computer Attacks at Department of Defense Pose
Increasing Risks (GAO/AIMD-96-84, May 22, 1996). 

Security Weaknesses at IRS' Cyberfile Data Center (GAO/AIMD-96-85R,
May 9, 1996). 

Department of Energy:  Procedures Lacking To Protect Computerized
Data (GAO/AIMD-95-118, June 5, 1995). 

Information Superhighway:  An Overview of Technology Challenges
(GAO/AIMD-95-23, Jan.  23, 1995). 

HUD Information Resources:  Strategic Focus and Improved Management
Controls Needed (GAO/AIMD-94-34, Apr.  14, 1994). 

IRS Information Systems:  Weaknesses Increase Risk of Fraud and
Impair Reliability of Management Information (GAO/AIMD-93-34, Sept. 
22, 1993). 


THE YEAR 2000 PROBLEM
=========================================================== Chapter 15

At 12:01 on New Year's morning of the year 2000, many computer
systems could either fail to run or malfunction--thereby producing
inaccurate results--simply because the equipment and software were
not designed to accommodate the change of date to the new millennium. 
For the past several decades, computer systems have typically used
two digits to represent the year.  With this abbreviated format,
however, the year 2000 is indistinguishable from 1900, 2001 from
1901, and so on.  As a result of this ambiguity, computer systems
that use dates for calculations, comparisons, or sorting may generate
incorrect results when working with years after 1999. 

Unless this problem is resolved ahead of time, widespread operational
and financial impacts could affect federal, state, and local
governments; foreign governments; and private sector organizations
worldwide.  Serious problems could potentially occur at the federal
level, given the agencies' dependence on computer systems in areas
such as tax processing, benefit payments, and loan management, to say
nothing of major operational systems. 

Date-related problems have been manifesting themselves for some
years, and more problems are beginning to appear as the new century
approaches.  Resolving this issue will involve extensive,
resource-intensive efforts due to the large scale of many federal
systems and the numerous dependencies and interactions they often
have with the systems of private-sector organizations and state
agencies. 

To complicate matters further, many government computer systems were
originally designed and developed 20 to 25 years ago, are poorly
documented, and use a wide variety of computer languages--many of
which are old or obsolete.  The systems consist of tens or hundreds
of computer programs, each with thousands, tens of thousands, or even
millions of lines of code which must be examined for date problems. 
With the end of the decade fast approaching, agencies must
immediately assess their Year 2000 risk exposure and plan and budget
for achieving Year 2000 compliance for all of their mission-critical
systems.  They will also need to develop contingency plans for those
systems that they are unable to change in time. 

In 1995, the Office of Management and Budget formed an interagency
working group on the Year 2000 issue, which is formulating a strategy
and timetable for dealing with the problem.  We will be working with
the Congress and the executive branch to monitor the progress being
made and identify specific recommendations for resolving the Year
2000 problem.  We are also developing a set of audit templates for
use by the audit community and agencies to identify their risk areas. 

Additional information on the Year 2000 problem can be found in a
separate information management and technology report issued as part
of this series (GAO/HR-97-9). 


   KEY CONTACTS
--------------------------------------------------------- Chapter 15:1

Joel Willemssen, Director
Information Resources Management
Accounting and Information Management Division
202-512-6408

William S.  Franklin, Director
Information Systems Methods and Support
Accounting and Information Management Division
202-512-6499


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 15:2

None


MEDICARE
=========================================================== Chapter 16

In fiscal year 1996, federal spending for Medicare was $197 billion. 
Program expenditures have been growing at about 9 percent per year. 
While growth has moderated somewhat during the last 2 years, many
view even the lower growth rates as unsustainable.  Moreover, the
trust fund that pays for hospital and other institutional services is
projected to be depleted within 5 years.  The Congress and the
President have been seeking to introduce changes to Medicare to help
control program costs.  At the same time, the Congress is concerned
that significant amounts of these costs are lost to fraudulent and
wasteful claims. 

Although no one can claim with precision how much Medicare loses each
year, our work suggests that by reducing unnecessary or inappropriate
payments, the federal government could realize large savings and help
dampen the growth in Medicare costs.  The hidden nature of improper
billing and health care crimes precludes a rigorously quantified
estimate of expenditures attributable to fraud and abuse.  Estimates
ranging from 3 to 10 percent have been cited for health expenditures
nationwide, so applying this range to Medicare suggests that losses
to fraud and abuse in fiscal year 1996 could have been from $6
billion to as much as $20 billion. 

The Health Care Financing Administration (HCFA), which runs the
Medicare program, has begun to acquire a new claims processing
system, the Medicare Transaction System (MTS), to provide, among
other things, better protection from fraud and abuse.  In the past,
we have reported on risks associated with this project, including a
plan to implement the system in a single stage, rather than
incrementally; difficulty in defining requirements; inadequate
investment analysis; and significant schedule problems.  HCFA has
responded to these concerns by changing its single-stage approach to
one under which the system will be implemented incrementally, and is
working to resolve other reported problems.  We plan to monitor these
efforts. 

In 1992 and again in 1995, GAO reported on Medicare as one of several
government programs highly vulnerable to waste, fraud, abuse, and
mismanagement.\1

Since the first report in the series, HCFA has made some regulatory
and administrative changes aimed at curbing fraudulent and
unnecessary payments.  However, in recent years, sizable cuts in the
budget for program safeguards, where most of the funding for the
fight against abusive billing is centered, have diminished efforts to
thwart improper billing practices. 

Most Medicare services are provided through the fee-for-service
sector, where any qualified provider can bill the program for each
covered service rendered.  In recent years, greater numbers of
Medicare beneficiaries have enrolled in health maintenance
organizations (HMO) to receive covered services.  The most recent
figures show, however, that almost 90 percent of beneficiaries remain
under fee-for-service.  Problems in funding program safeguards and
HCFA's limited oversight of contractors continue to contribute to
fee-for-service program losses.  While HCFA expects a major system
acquisition project to reduce certain weaknesses, the project itself
has several risks that may keep HCFA from attaining its goals.  In
addition, the managed care program suffers from excessive payment
rates to HMOs and weak HCFA oversight of the HMOs it contracts with. 
These flaws leave beneficiaries without information essential to
guide their HMO selection and without assurance that HMOs are
adequately screened and disciplined for unacceptable care. 

Since GAO's last high-risk report in 1995, the government has made
important strides in its efforts to protect Medicare from
exploitation.  Recent legislation--the Health Insurance Portability
and Accountability Act of 1996 (P.L.  104-191), popularly known as
the Kassebaum-Kennedy Act--increases funding for program safeguards,
although per-claim expenditures will remain below the level of 1989
after adjusting for inflation.  Nevertheless, we expect that the
increase, if properly applied, can significantly improve antifraud
and antiabuse efforts.  In addition, HCFA anticipates that it will
gain enhanced oversight capacity and reduced administrative costs
when the next-generation claims processing system--the Medicare
Transaction System--is fully implemented, which HCFA expects to occur
after the year 2000.  Further, the Department of Health and Human
Services Inspector General and other federal and state agencies have
banded together to fight fraud in five states, in an effort called
Operation Restore Trust.  After the first year of operation, the
effort yielded more than $40 million in recoveries of payments for
claims that were not allowed under Medicare rules, as well as
convictions for fraud, impositions of civil monetary penalties, and
the exclusion of providers from the program. 

Progress is also being made in addressing program management issues. 
For example, the Health Insurance Portability and Accountability Act
gives additional flexibility to HCFA to contract with firms
specializing in utilization reviews and makes the penalties for
Medicare fraud more severe.  HCFA is also improving its credentialing
process for Medicare providers and is currently evaluating
commercially available software for its potential to screen out some
types of inappropriate claims.  Additionally, the new Health
Insurance Portability legislation and several planned consumer
information efforts offer the potential for improved HCFA oversight
of HMOs. 

Many of Medicare's vulnerabilities are inherent in its size and
mission, making the government's second largest social program a
perpetually attractive target for exploitation.  That wrongdoers
continue to find ways to dodge safeguards illustrates the dynamic
nature of fraud and abuse and the need for constant vigilance and
increasingly sophisticated ways to protect against gaming the system. 
Judicious changes in Medicare's day-to-day operations entailing
HCFA's improved oversight and leadership, its appropriate application
of new antifraud and antiabuse funds, and the mitigation of MTS
acquisition risks are necessary ingredients to reduce substantial
future losses.  Moreover, as Medicare's managed care enrollment
grows, HCFA must ensure that payments to HMOs better reflect the cost
of beneficiaries' care, that beneficiaries receive sufficient
information about HMOs to make informed choices, and that the
agency's expanded authority to enforce HMO compliance with federal
standards is used.  To adequately safeguard the Medicare program,
HCFA needs to meet these important challenges promptly. 

Additional information on Medicare claims fraud and abuse problems
and progress can be found in a separate report issued as part of this
series (GAO/HR-97-10). 


--------------------
\1 High-Risk Series:  Medicare Claims (GAO/HR-93-6, Dec.  1992) and
High-Risk Series:  Medicare Claims (GAO/HR-95-8, Feb.  1995). 


   KEY CONTACT
--------------------------------------------------------- Chapter 16:1

William J.  Scanlon, Director
Health Financing and Systems Issues
Health, Education and Human Services Division
202-512-7114


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 16:2

Medicare:  HCFA Should Release Data to Aid Consumers, Prompt Better
HMO Performance (GAO/HEHS-97-23, Oct.  22, 1996). 

Medicare:  Private Payer Strategies Suggest Options to Reduce Rapid
Spending Growth (GAO/T-HEHS-96-138, Apr.  30, 1996). 

Medicare:  Home Health Utilization Expands While Program Controls
Deteriorate (GAO/HEHS-96-16, Mar.  27, 1996). 

Medicare:  Millions Can Be Saved by Screening Claims for Overused
Services (GAO/HEHS-96-49, Jan.  30, 1996). 

Fraud and Abuse:  Providers Target Medicare Patients in Nursing
Facilities (GAO/HEHS-96-18, Jan.  24, 1996). 

Medicare Transaction System:  Strengthened Management and Sound
Development Approach Critical to Success (GAO/T-AIMD-96-12, Nov.  16,
1995). 

Medicare Managed Care:  Growing Enrollment Adds Urgency to Fixing HMO
Payment Problem (GAO/HEHS-96-21, Nov.  8, 1995). 

Medicare:  Increased HMO Oversight Could Improve Quality and Access
to Care (GAO/HEHS-95-155, Aug.  3, 1995). 

High-Risk Series:  Medicare Claims (GAO/HR-95-8, Feb.  1995). 


SUPPLEMENTAL SECURITY INCOME
=========================================================== Chapter 17

The Social Security Administration (SSA) administers the Supplemental
Security Income (SSI) program, which pays cash benefits to the
low-income aged, blind, and disabled.  Since its inception in 1974,
the number of individuals receiving SSI cash benefits has grown
significantly.  During the first 10 months of 1996, about 6.6 million
SSI beneficiaries received about $22 billion in federal benefits and
$3 billion in state supplemental payments.  As the program has grown
in both size and complexity, criticisms have been raised regarding
SSA's ability to effectively manage SSI workloads and the program's
susceptibility to fraud, waste, abuse, and mismanagement.  The SSI
program has been adversely impacted by internal control weaknesses,
vague and complex policies, and insufficient management attention. 

Previous GAO reviews of the SSI program have highlighted several
long-standing problem areas:  (1) determining initial and continuing
financial eligibility for beneficiaries, (2) determining disability
eligibility and performing continuing disability reviews, and (3)
inadequate return-to-work assistance for recipients who may be
assimilated back into the workforce. 

In determining financial eligibility, SSA relies heavily on program
beneficiaries to report information that affects their benefits
levels, such as incarceration and changes in resources or income. 
This reliance on self-reporting significantly affects the agency's
ability to control overpayments.  For example, in August 1996, we
reported that about 3,000 current and former prisoners in 13 county
and local jail systems had been erroneously paid $5 million in SSI
benefits, primarily because SSA lacked timely and complete
information.  Program overpayments have grown to nearly $1 billion
per year, which is about 5 percent of total benefit payments. 

Determining whether a claimant's impairment qualifies him or her for
disability benefits is also a significant problem in the SSI program,
particularly for non-English-speaking applicants and individuals with
mental impairments, drug and alcohol addictions, and other hard to
diagnose conditions.  For example, translators have assisted
immigrants unable to speak English to fraudulently obtain benefits by
coaching them on which medical symptoms to claim and providing false
information on their medical conditions and family history.  SSA's
ability to ensure reasonable consistency in administering the program
for children with behavioral and learning disorders has also been
limited by the subjective nature of certain disability criteria. 

SSA's lengthy and complex processes for determining disability often
result in inconsistent and untimely decisions.  In August 1994, we
reported that applicants for SSI benefits wait 94 days on average for
an initial decision, with an additional 373-day wait for appealed
decisions.  Moreover, SSA has a poor record of controlling program
expenditures by reviewing recipients to ensure they remain eligible
for benefits and referring individuals to vocational and
rehabilitation services so they can return to the workforce and leave
the SSI rolls.  These problems have compromised the integrity of the
disability program and reinforced public perceptions that SSA pays
SSI benefits to too many people for too long. 

To address SSI program problems, SSA has initiated a major redesign
of the disability claims and appeals process, which will be
implemented over the next several years.  In addition, the Congress
recently passed legislation to tighten eligibility criteria for
children and immigrants, remove drug addicts and alcoholics from the
SSI rolls, and strengthen existing laws aimed at preventing SSI
payments to individuals in correctional institutions.  The
legislation also requires SSA to conduct more reviews of SSI
recipients to ensure that they remain eligible for benefits.  It is
too early to determine how these changes will affect the SSI
program's vulnerability to inappropriate expenditures. 

The magnitude of the SSI program and its demonstrated vulnerability
to fraud, waste, abuse, and mismanagement call for decisive
management action to address long-standing problems.  Redesign of the
disability claims process must remain an agency priority, and SSA
must also establish effective program policy, management
accountability, and internal controls to protect taxpayer dollars and
assure timely and accurate decisions for SSI claimants.  The
selection of a new Commissioner will provide an opportunity for
renewed agency focus on management of the SSI program and ensuring
the future viability and integrity of the program. 


   KEY CONTACT
--------------------------------------------------------- Chapter 17:1

Jane L.  Ross, Director
Income Security Issues
Health, Education and Human Services Division
202-512-7215


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 17:2

SSA Disability Redesign:  Focus Needed on Initiatives Most Crucial to
Reducing Costs and Time (GAO/HEHS-97-20, Dec.  20, 1996). 

Social Security Disability:  Improvements Needed to Continuing
Disability Review Process (GAO/HEHS-97-1, Oct.  16, 1996). 

Supplemental Security Income:  SSA Efforts Fall Short in Correcting
Erroneous Payments to Prisoners (GAO/HEHS-96-152, Aug.  30, 1996). 

Supplemental Security Income:  Administrative and Program Savings
Possible by Directly Accessing State Data (GAO/HEHS-96-163, Aug.  29,
1996). 

Supplemental Security Income:  Some Recipients Transfer Valuable
Resources to Qualify for Benefits (GAO/HEHS-96-79, Apr.  30, 1996). 

Pass Program:  SSA Work Incentive for Disabled Beneficiaries Poorly
Managed (GAO/HEHS-96-51, Feb.  28, 1996)

Supplemental Security Income:  Disability Program Vulnerable to
Applicant Fraud When Middlemen Are Used (GAO/HEHS-95-116, Aug.  31,
1995). 

Social Security:  New Functional Assessments for Children Raise
Eligibility Questions (GAO/HEHS-95-66, Mar.  10, 1995). 


FARM LOAN PROGRAMS
=========================================================== Chapter 18

The U.S.  Department of Agriculture's (USDA) farm loan programs are
intended to provide temporary financial assistance to farmers and
ranchers who are unable to obtain commercial credit at reasonable
rates and terms.\1 In operating the farm loan programs, USDA faces
the conflicting tasks of providing temporary credit to high-risk
borrowers so that they can stay in farming until they are able to
secure commercial credit and of ensuring that the taxpayers'
investment is protected.  We reported on the federal government's
exposure to financial loss in two earlier reports in GAO's high-risk
series. 

In December 1992, we highlighted the poor financial condition of
USDA's farm loan portfolio.  We pointed out that even after forgiving
or writing off billions of dollars of unpaid debt, much of the
portfolio continued to be held by delinquent borrowers.  Furthermore,
we reported that USDA had become a permanent, rather than a
temporary, source of credit for many borrowers.  We identified three
factors contributing to these problems:  (1) field office lending
officials were not always implementing lending and servicing
standards designed to safeguard federal financial interests, (2) some
of the loan-making, loan-servicing, and property management policies
were fundamentally weak and increased the government's vulnerability
to loss, and (3) the Congress had not provided clear direction on the
basic purposes of the farm loan programs. 

In our February 1995 high-risk series, we noted that some progress
had been made in addressing two causes of the loan programs'
problems.  First, USDA had improved compliance with certain lending
and servicing standards by increasing the training of its field
officials.  Second, the Congress had clarified certain aspects of the
Department's basic lending mission by requiring it to focus on
assisting beginning farmers.  However, we also reported that no
actions had been taken to strengthen weak loan and property
management policies and that the Congress needed to further clarify
the agency's role. 

Since our February 1995 report, the Congress has enacted legislation
that, if implemented properly, should significantly reduce the
financial risks associated with the farm lending programs. 
Specifically, Title VI of the Federal Agriculture Improvement and
Reform (FAIR) Act of 1996 (P.L.  104-127, Apr.  4, 1996) made
fundamental changes to the programs' loan-making, loan-servicing, and
property management policies.  The changes included

  -- prohibiting delinquent borrowers from obtaining additional
     direct farm operating loans,

  -- generally prohibiting borrowers who cause USDA to incur loan
     losses from obtaining additional direct or guaranteed farm
     loans, except annual operating loans,

  -- limiting the number of times delinquent borrowers can receive
     debt forgiveness, and

  -- requiring certain delinquent borrowers to pay a portion of the
     interest due to USDA as a condition for having the terms of
     their loans rewritten. 

In addition to substantially strengthening lending and property
management policies, the FAIR Act provided direction for many other
aspects of USDA's basic lending mission.  For example, it emphasized
that farm loan assistance is temporary and, consistent with that
policy, promoted borrowers' graduation from direct loans to
commercial loans guaranteed by the federal government.  In addition,
the act further reinforced the importance that the Congress placed on
using the lending programs to assist beginning farmers and ranchers
over other groups of potential beneficiaries. 

Overall, the extensive reforms mandated by the FAIR Act, combined
with USDA's actions to improve compliance with program standards,
should reduce the farm lending programs' vulnerability to loss. 
However, USDA is still in the process of implementing the mandated
reforms, and their impact on the loan portfolio's financial condition
will not be known for some time.  During fiscal year 1997, we plan to
monitor USDA's implementation of these reforms and reevaluate whether
the farm loan programs should be removed from the list of high-risk
areas. 


--------------------
\1 Within USDA, farm loans are administered by the Farm Service
Agency; prior to the Department's October 1994 reorganization, the
loans were administered by the Farmers Home Administration. 


   KEY CONTACT
--------------------------------------------------------- Chapter 18:1

Robert A.  Robinson, Director
Food and Agriculture Issues
Resources, Community, and Economic Development Division
202-512-5138


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 18:2

Farm Service Agency:  Update on the Farm Loan Portfolio
(GAO/RCED-97-35, Jan.  3, 1997). 

Emergency Disaster Farm Loans:  Government's Financial Risk Could Be
Reduced (GAO/RCED-96-80, Mar.  29, 1996). 

Consolidated Farm Service Agency:  Update on the Farm Loan Portfolio
(GAO/RCED-95-223FS, July 14, 1995). 

High-Risk Series:  Farm Loan Programs (GAO/HR-95-9, Feb.  1995). 

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:  Billions of Dollars in Farm Loans Are
at Risk (GAO/RCED-92-86, Apr.  3, 1992). 


STUDENT FINANCIAL AID
=========================================================== Chapter 19

Although the Department of Education has shown a commitment to
improving its oversight and management of the student aid programs,
we believe the financial risk to U.S.  taxpayers remains substantial. 
The procedural and structural program elements that are the root
causes of the problems remain.  Some of these arose from the
statutory design of the programs and will remain unless changed
through congressional action.  Although the Department can mitigate
some of these problems through more effective oversight and
management, many of its initiatives, discussed in our 1995 report,
have not been fully implemented.  Progress toward their full
implementation has been mixed. 

The student aid programs employ complex and cumbersome processes with
many participants.  The major ones--the Federal Family Education Loan
Program (FFELP), Ford Direct Loan Program (FDLP), and Pell
grants--have their own procedures and set of participants. 
Overseeing these processes clearly presents a management challenge to
the Department.  Moreover, the introduction of FDLP (which accounted
for about 33 percent of loans in 1995-96) has added a new dimension
of complexity.  Although the administration planned for FDLP to
replace FFELP, the Congress has allowed both programs to operate
concurrently for the time being. 

The programs' structural flaws remain.  To maximize access to aid
funds, the Higher Education Act placed nearly all the financial risk
of loan defaults on the federal government.  Since 1980, as the
number of borrowers increased, so have the number of defaults.  In
addition, the number of students coming from lower income families
and attending proprietary trade and other nontraditional schools has
increased, increasing the risk of programwide defaults.  How FDLP may
impact these known problems is unclear.  Loan repayment and default
histories are just beginning to be developed as the first FDLP
borrowers complete their education and begin repaying their loans. 

Management shortcomings are another major problem.  Actions in four
areas in particular are critical for minimizing waste, fraud, abuse,
and mismanagement and require continuing attention and improvement by
the Department:  (1) gatekeeping, (2) program administration, (3)
information resources management, and (4) financial management.  In
some areas, such as gatekeeping, the Department has improved some of
its practices.  In others, many past problems remain.  For example,
Department initiatives to improve information resources management
have not fully succeeded in improving data quality and systems
integration.  This situation also affects the programs' internal
controls, as follows: 

  -- Poor quality and unreliable FFELP student loan data remain in
     the Department's systems.  As a result, the Department cannot
     obtain complete, accurate, and reliable FFELP data necessary to
     report on its financial position. 

  -- Inaccurate loan data are being loaded in the National Student
     Loan Data System, the Department's principal student aid
     database intended to help resolve data quality problems. 

On the other hand, the Department has generally been responsive to
addressing problems in its student aid programs, and many of those
actions appear to be achieving some results.  For example, FFELP
default claim payments declined slightly from $2.7 billion in fiscal
year 1992 to $2.5 billion in fiscal year 1995. 

The Department has also begun planning a major reengineering effort
that it expects will resolve these problems in the next several
years.  This effort, which is known as Easy Access for Students and
Institutions, or Project EASI, is envisioned as a student-based,
integrated data system through which all management and control
functions will be conducted. 

Additional information on student financial aid problems and progress
can be found in a separate report issued as part of this series
(GAO/HR-97-11). 


   KEY CONTACT
--------------------------------------------------------- Chapter 19:1

Carlotta C.  Joyner, Director
Education and Employment Issues
Health, Education and Human Services Division
202-512-7014


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 19:2

Department of Education:  Status of Actions to Improve the Management
of Student Financial Aid (GAO/HEHS-96-143, July 12, 1996). 

Higher Education:  Ensuring Quality Education From Proprietary
Institutions (GAO/T-HEHS-96-158, June 6, 1996). 

Financial Audit:  Federal Family Education Loan Program's Financial
Statements for Fiscal Years 1994 and 1993 (GAO/AIMD-96-22, Feb.  26,
1996). 

Student Financial Aid:  Data Not Fully Utilized to Identify
Inappropriately Awarded Loans and Grants (GAO/HEHS-95-89, July 11,
1995). 

High-Risk Series:  Student Financial Aid (GAO/HR-95-10, Feb.  1995). 

Student Loans:  Millions Loaned Inappropriately to U.S.  Nationals at
Foreign Medical Schools (GAO/HEHS-94-28, Jan.  21, 1994). 


DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
=========================================================== Chapter 20

The diversity of the Department of Housing and Urban Development's
(HUD) missions has resulted in a Department that is intricately woven
into the nation's financial and social framework and that interacts
with a number of diverse constituencies, such as public housing
authorities, private property owners, and nonprofit groups.  HUD also
spends a significant amount of tax dollars in carrying out its
missions.  The discretionary budget outlays for HUD's programs were
estimated at close to $31.8 billion in fiscal year 1995, over
three-fourths of which was for public and assisted housing programs. 
HUD is also one of the nation's largest financial institutions, with
significant commitments, obligations, and exposure.  It is
responsible for managing more than $400 billion worth of insured
mortgages, $485 billion in outstanding mortgage-backed securities,
and about $180 billion in prior years' budget authority for which it
has future financial commitments. 

Our February 1995 high-risk report discussed four long-standing
Departmentwide management deficiencies--weak internal controls,
inadequate information and financial management systems, ineffective
organizational structure, and insufficient mix of staff with proper
skills--that first led us to designate HUD as a high-risk area in
January 1994.  While HUD has subsequently formulated approaches and
initiated actions to address these deficiencies, its efforts are far
from reaching fruition, and HUD's programs continue to pose a high
risk to the government in terms of their vulnerability to waste,
fraud, abuse, and mismanagement. 

In the area of internal controls, HUD has made limited progress, but
major problems persist.  Over the past 2 years, auditors have been
unable to render opinions on HUD's financial statements because of
weaknesses involving internal controls and financial systems.  HUD's
remaining internal control weaknesses are significant and
long-standing and, despite its importance as a management control
tool, monitoring of program participants continues to be a problem
area for HUD.  Despite HUD's efforts to improve information and
financial management systems, some of the improvement projects that
involve HUD's major financial and information systems will not be
completed before the year 2000.  Furthermore, many of HUD's systems
do not comply with the Federal Managers' Financial Integrity Act and
therefore cannot be relied upon to provide timely, accurate, and
reliable information and reports to management. 

HUD has taken significant steps to improve its organizational
structure by eliminating its regional office structure, consolidating
many program operations and functions into service centers, and
better balancing service delivery needs.  However, HUD has not yet
evaluated the effects of its actions.  HUD plans additional efforts
to reorganize and to reduce its total staff by 29 percent (from about
10,500 to 7,500) by the year 2000.  HUD has made progress in
addressing problems with staff members' skills and with resource
management.  In spite of the progress, the Department needs to
increase the number of staff receiving training, perform a needs
assessment process to plan future training, and develop sufficient
training in certain areas, such as technical and interpersonal
skills. 

HUD deserves credit for its continued emphasis on, and progress
toward, addressing its long-standing management deficiencies. 
However, HUD's programs will remain at high risk to fraud, waste,
abuse, and mismanagement until the agency completes more of its
planned corrective actions and until the administration and the
Congress agree on and implement a restructuring strategy that focuses
HUD's mission and consolidates, reengineers, or reduces HUD's
programs so as to bring the Department's management responsibilities
in line with its management capacity.  In reaching agreement, the
parties will need to consider the inherent trade-offs involved in
fulfilling the needs of those seeking HUD's assistance with other
demands on the total federal budget. 

Additional information on HUD problems and progress can be found in a
separate report issued as part of this series (GAO/HR-97-12). 


   KEY CONTACT
--------------------------------------------------------- Chapter 20:1

Judy A.  England-Joseph, Director
Housing and Community Development Issues
Resources, Community, and Economic Development Division
202-512-7631


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 20:2

Multifamily Housing:  Effects of HUD's Portfolio Reengineering
Proposal (GAO/RCED-97-7, Nov.  1, 1996). 

Housing and Urban Development:  Limited Progress Made on HUD Reforms
(GAO/T-RCED-96-112, Mar.  27, 1996). 

FHA Hospital Mortgage Insurance Program:  Health Care Trends and
Portfolio Concentration Could Affect Program Stability
(GAO/HEHS-96-29, Feb.  27, 1996). 

Homeownership:  Mixed Results and High Costs Raise Concerns About
HUD's Mortgage Assignment Program (GAO/RCED-96-2, Oct.  18, 1995). 

Housing and Urban Development:  Public and Assisted Housing Reform
(GAO/T-RCED-96-25, Oct.  13, 1995). 

HUD Management:  Greater Oversight Needed of FHA's Nursing Home
Insurance Program (GAO/RCED-95-214, Aug.  25, 1995). 

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-95-11, Feb.  1995). 

HUD Information Resources:  Strategic Focus and Improved Management
Controls Needed (GAO/AIMD-94-34, Apr.  14, 1994). 


DEPARTMENT OF ENERGY CONTRACT
MANAGEMENT
=========================================================== Chapter 21

The Department of Energy (DOE)--the largest civilian contracting
agency in the federal government--contracted out about 91 percent of
its $19.2 billion in fiscal year 1995 obligations.  Contractors who
manage and operate DOE-owned facilities generally fulfill such DOE
missions as maintaining the nation's weapons complex and cleaning up
environmental contamination from past weapons production. 

We designated DOE contracting in 1990 as a high-risk area vulnerable
to waste, fraud, abuse, and mismanagement because DOE's missions rely
heavily on contractors and DOE has a history of weak contractor
oversight.  Special contracting arrangements initiated for the
Manhattan Project's development of the atomic bomb during World War
II continued decades later.  DOE continued to enter into contracts in
which competition was the exception, reimbursement of virtually any
contractor cost was the practice, and lax contractor oversight was
the norm. 

We issued a series of reports and testimonies documenting DOE's
contracting practices and problems and identifying some of the costly
effects.  These products have contributed to the Congress' budget
deliberations and provided an impetus for DOE to reform its
contracting. 

However, changing the way DOE does business has not come easily or
quickly.  DOE has taken various actions in the past to improve its
contracting, and a recent contract reform effort that has received
high priority and visibility appears promising.  DOE's Contract
Reform Team, in a February 1994 report, recommended nearly 50 actions
to fundamentally change DOE's contracting practices. 

In response, DOE has made progress in developing an array of policies
and procedures to support the recommendations.  For example, it (1)
published a regulation adopting a standard of full and open
competition in the award of its management and operating contracts,
(2) included in its contracts incentives to improve performance and
control costs, and (3) initiated a new approach to shift to the
contractor much of the risk and responsibility for some environmental
cleanup work. 

The proposed reforms are unprecedented in scope within DOE and
provide the framework for improved contracting.  However, the test of
success will occur as DOE implements, monitors, and adjusts to this
totally new way of doing business.  Our recent review of DOE's
reforms revealed problems in early implementation.  For example, most
of DOE's contract decisions continue to be noncompetitive and
contract goals are not always linked to those of DOE. 

Given the magnitude of these reforms, implementation problems are to
be expected.  However, they must be identified and corrected for
contract reform to succeed.  Therefore, DOE's continuance of
high-level monitoring and oversight will be needed to further
identify problems, standardize the best practices, and make needed
corrections as DOE makes its way through these changes. 

Additional information on DOE's contracting problems and progress can
be found in a separate report issued as part of this series
(GAO/HR-97-13). 


   KEY CONTACT
--------------------------------------------------------- Chapter 21:1

Victor S.  Rezendes, Director
Energy, Resources, and Science Issues
Resources, Community, and Economic Development Division
202-512-3841


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 21:2

Department of Energy:  Contract Reform Is Progressing, But Full
Implementation Will Take Years (GAO/RCED-97-18, Dec.  10, 1996). 

Hanford Waste Privatization (GAO/RCED-96-213R, Aug.  2, 1996). 

High-Risk Series:  Quick Reference Guide (GAO/HR-95-2, Feb.  1995). 


NASA CONTRACT MANAGEMENT
=========================================================== Chapter 22

The National Aeronautics and Space Administration (NASA) spends about
90 percent of its budget on contracts with businesses and other
organizations.  NASA's procurement budget is one of the largest of
all federal civilian agencies, totalling about $13 billion annually
in recent years.  NASA first identified its contract management as
vulnerable to waste and mismanagement in the late 1980s.  Since then,
it has grappled with a variety of contract management problems caused
by (1) planning procurements based on unrealistic funding
expectations, (2) the lack of adequate systems and information with
which to monitor contractors' cost, schedule, and performance
activities, and (3) field centers' failure to fully comply with
contract management requirements. 

In the early 1990s, we reported that NASA's 5-year program plan was
about $20 billion higher than its likely budgets.  To adjust programs
to budgets, NASA's projects and programs often must be slowed down,
thus extending their schedules and increasing total contract costs. 
By the end of 1994, NASA had eliminated almost all of the $20 billion
gap between its program plan and likely budgets that had existed just
2 years earlier, in large part by terminating, slowing the pace, or
reducing the capability of ongoing projects.  However, in early 1995,
the executive branch directed NASA to cut its future years' budgets
by another $5 billion.  This gap is much smaller than the previous
one, and NASA management hopes to absorb as much of it as possible by
reducing the agency's infrastructure, including facilities,
personnel, and support contractors.  Based on our observations of
NASA's current reduction efforts, however, we have reported that NASA
may not be able to close this latest "budget gap" solely through
infrastructure reductions.  Thus, there is still some potential for a
continuation of programmatic cutbacks and slowdowns that extend
schedules and increase contract costs. 

NASA has made considerable progress in developing ways to better
influence contractors' performance and to improve oversight of field
centers' procurement activities.  For example, NASA

  -- established a process for collecting cost, schedule, and
     technical information for all major NASA contracts to assist
     management in agencywide tracking of contractor performance;

  -- restructured its policy on award fees to emphasize contract cost
     control and the performance of contractors' end products;

  -- issued guidance on providing property to contractors to comply
     with the Federal Acquisition Regulation, which severely
     restricts the amount of general purpose equipment that agencies
     should provide; and

  -- improved the management of contract audit services, including
     expanding the use of such services in managing and reporting on
     contract property. 

NASA headquarters has developed and implemented a broad range of
metrics and reports to help it oversee the field centers' procurement
activities and to measure the effectiveness of its contract
management improvement efforts.  The metrics show progress and
improvement in a number of targeted areas.  For example, NASA lowered
the value of contract changes for which prices had not yet been
negotiated from a peak of $6.6 billion in December 1991 to less than
$500 million in September 1996.  Also, the number of unresolved
audits by the Defense Contract Audit Agency was reduced to 13 in June
1996 from 92 in 1994.  Moreover, as of April 1, 1995, all contracting
officers' technical representatives had received or were scheduled to
receive mandatory training on their duties, responsibilities, and
authority.  Finally, more than 600 NASA personnel received
procurement-related training from fiscal year 1993 through March
1996. 

Despite NASA's progress, our most recent work identified barriers to
relying solely on infrastructure reductions to close the budget gap,
additional problems in contract management, and opportunities for
improvement in procurement oversight.  Barriers to implementing
infrastructure cost-reduction opportunities include parochial
concerns that hinder NASA's efforts to close facilities, relocate
activities, and consolidate operations.  In some cases, NASA
heightened these concerns by performing questionable cost-reduction
studies and substantially overstating the cost-reduction potential of
certain actions. 

In July 1996, we reported on problems in controlling costs in the
International Space Station Program, which accounts for over 10
percent of NASA's annual procurement funding.  Although NASA's prime
development contractor and its major subcontractors had implemented
performance measurement systems to monitor cost and schedule status,
procedural errors and other problems in implementing the systems
affected the accuracy of reported information. 

In recent years, NASA field centers have assumed increasing
responsibility for overseeing their own procurement activities. 
Earlier in 1996, we indicated that NASA could improve the
self-assessment process its field centers use to periodically
evaluate their procurement functions.  We specifically noted that the
quality, consistency, and usefulness of such assessments could be
improved if centers had additional guidance and information in a
variety of areas, including self-assessment documentation and
follow-up on the correction of problems.  NASA officials noted that
they would consider our observations on improving self-assessments as
they continue to refine the process. 

The effectiveness of the self-assessment process is critical in light
of recent and planned personnel reductions.  NASA faces the
formidable challenge of operating and overseeing procurement
activities under heavy personnel reduction pressures.  While NASA
headquarters and field center procurement officials believe that
recent efforts to improve and streamline the procurement process will
help them cope with staff reductions, they are concerned about the
long-term implications of planned and potential cutbacks.  For
example, headquarters officials are concerned that they may not have
adequate personnel to effectively manage contracting and
subcontracting activities.  We have not assessed the potential
implications of reduced procurement staffing. 

Periodic problems will inevitably occur in a procurement activity the
size of NASA's.  The agency's objective must be to identify these
problems early so they can be evaluated, monitored, and corrected
before they become systemic.  NASA has demonstrated that it can take
timely action once a potential problem has surfaced.  We are
encouraged by the agency's efforts to evaluate identified problems
and to develop, implement, and monitor needed improvements.  However,
our initial look at NASA's approach to periodically assessing its
management of procurement functions indicated that the process could
benefit from additional agencywide guidance to help ensure consistent
and thorough coverage of the procurement cycle.  We are continuing
our review of NASA's ability to adequately assess its procurement
activities, and we will report on the results of our work later this
year.  We are also continuing our oversight of NASA's actions to
improve cost reporting on the International Space Station Program and
NASA's continuing efforts to downsize its infrastructure, especially
its facilities. 


   KEY CONTACT
--------------------------------------------------------- Chapter 22:1

Thomas J.  Schulz, Associate Director
Defense Acquisitions Issues
National Security and International Affairs Division
202-512-4841


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 22:2

NASA Infrastructure:  Challenges to Achieving Reductions and
Efficiencies (GAO/NSIAD-96-187, Sept.  9, 1996, and
GAO/T-NSIAD-96-238, Sept.  11, 1996). 

Space Station:  Cost Control Difficulties Continue (GAO/NSIAD-96-135,
July 17, 1996, and GAO/T-NSIAD-96-210, July 24, 1996). 

NASA Contract Management (GAO/NSIAD-96-95R, Feb.  16, 1996). 

NASA Budgets:  Gap Between Funding Requirements and Projected Budgets
Has Been Reopened (GAO/NSIAD-95-155BR, May 12, 1995). 

High-Risk Series:  Quick Reference Guide (GAO/HR-95-2, Feb.  1995). 

NASA Procurement:  Contract and Management Improvements at the Jet
Propulsion Laboratory (GAO/NSIAD-95-40, Dec.  30, 1994). 


SUPERFUND PROGRAM MANAGEMENT
=========================================================== Chapter 23

The Environmental Protection Agency's (EPA) Superfund program began
in 1980 as a relatively short-term project to clean up abandoned
hazardous waste sites.  At that time, the country's hazardous waste
problems were thought to be limited.  Since then, thousands of waste
sites have been discovered.  Furthermore, cleaning up these
sites--many of which are owned by the federal government--has proved
to be far more complicated and costly than anticipated.  Recent
estimates show that cleaning up these sites could amount to over $300
billion in federal costs and many billions more in private
expenditures. 

Under the Superfund law, EPA can compel the private parties
responsible for abandoned or inactive hazardous waste sites to clean
them up, or it can conduct the cleanup and demand reimbursement of
its costs from the responsible parties.  Currently, EPA has
negotiated with private parties to do over 70 percent of the
cleanups.  To pay for EPA's cleanups, the agency draws on a
legislatively established trust fund that is primarily financed by a
tax on crude oil and certain chemicals and by an environmental tax on
corporations.\1 Federal agencies generally use their annual
appropriations to finance cleanups of the facilities under their
jurisdiction. 

However, as we previously reported, certain management problems have
put this investment at risk.\2 First, EPA and other federal agencies
have not consistently allocated their cleanup resources to reduce the
most significant threats to human health and the environment. 
Second, although EPA is responsible for pursuing reimbursement when
it funds a cleanup, the agency has recovered from responsible parties
only a fraction of the moneys that it has spent.  Finally, while
about half of the Superfund program's budget annually goes to
contractors, EPA has had long-standing problems with controlling the
contractors' costs. 

Since our 1995 report, EPA and other federal agencies have taken
steps toward addressing these areas.  For instance, EPA has begun
using a risk-based process to set priorities and allocate some of its
fiscal year 1996 cleanup funds.  Other federal agencies have made
uneven progress in (1) taking the first step toward setting
priorities--that is, developing a complete inventory of the waste
sites that need cleanup--and (2) implementing systems to rank sites
for cleanup according to risk. 

Second, EPA has made some improvements in its cost recovery program,
although it still recovers only a small percentage of its costs when
it does the cleanup work.  While some costs are not expected to be
recovered, EPA's historically low recovery rate in part results from
the agency's slow pace in revising its policy that limits the
recovery of indirect program costs.  EPA estimates that the value of
these excluded costs has grown to $3.8 billion through fiscal year
1995--up from a value of $1.1 billion 3 years earlier. 

Finally, while EPA has focused attention on strengthening its
management of Superfund contracts, past problems still persist:  (1)
EPA's regions are still too dependent upon the contractors' own cost
proposals to establish the price of cost-reimbursable work, (2) EPA
continues to pay its cleanup contractors a high percentage of total
contract costs to cover administrative expenses rather than ensuring
that the maximum amount of available moneys is going toward the
actual cleanup work, and (3) little progress has been made in
improving the timeliness of audits to verify the accuracy of billions
of dollars in Superfund contract charges. 

Thus, despite improvements, further actions are needed to safeguard
the investment of hundreds of billions of dollars.  EPA and other
federal agencies need to expand their use of risk as a criterion to
set cleanup priorities.  Further, to help recover more of its program
costs, EPA needs to move expeditiously to increase the amount of
indirect program costs that are recoverable.  EPA estimates show that
planned changes could increase recoveries by as much as $500 million
(of the $3.8 billion in excluded indirect costs).  Finally, although
EPA has been addressing the weaknesses in contract management, the
agency needs to take such steps as better estimating the costs of
contractors' work. 

Additional information on Superfund problems and progress can be
found in a separate report issued as part of this series
(GAO/HR-97-14). 


--------------------
\1 In December 1995, the authority to collect these taxes expired and
taxes are no longer being collected.  However, as of September 1995,
the trust fund had an unappropriated balance of $2.9 billion.  As a
result, it could still be used to finance the Superfund program. 

\2 High-Risk Series:  Superfund Program Management (GAO/HR-93-10,
Dec.  1992) and High-Risk Series:  Superfund Program Management
(GAO/HR-95-12, Feb.  1995). 


   KEY CONTACT
--------------------------------------------------------- Chapter 23:1

Peter F.  Guerrero, Director
Environmental Protection Issues
Resources, Community, and Economic Development Division
202-512-6111


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 23:2

Federal Facilities:  Consistent Relative Risk Evaluations Needed for
Prioritizing Cleanups (GAO/RCED-96-150, June 7, 1996). 

Environmental Protection:  Selected Issues Related to EPA's Fiscal
Year 1997 Appropriations (GAO/T-RCED-96-164, Apr.  17, 1996). 

Superfund:  System Enhancements Could Improve the Efficiency of Cost
Recovery (GAO/AIMD-95-177, Aug.  25, 1995). 

Federal Hazardous Waste Sites:  Opportunities for More Cost-Effective
Cleanups (GAO/T-RCED-95-188, May 18, 1995). 

Superfund:  The Role of Risk in Setting Priorities
(GAO/T-RCED-95-161, Apr.  5, 1995). 

High-Risk Series:  Superfund Program Management (GAO/HR-95-12, Feb. 
1995). 


2000 DECENNIAL CENSUS
=========================================================== Chapter 24

The decennial census, the nation's most comprehensive statistical
data-gathering program, is required by the Constitution.  The results
are critical for apportioning seats in the House of Representatives
and are also used to (1) draw district boundaries within states,
cities, and counties, (2) allocate billions of dollars in federal
funding for numerous programs, (3) provide a baseline for comparative
data collection and analysis for the ensuing decade, and (4) guide
the plans and decisions of government, business, education, and
health institutions in the multibillion dollar investments they make. 
Agreement is needed between the administration and the Congress on an
approach that will both minimize risk of an unsatisfactory census and
keep the cost of doing it within reasonable bounds. 

Since 1970, the Census Bureau has used essentially the same
methodology in conducting the decennial census.  It developed an
address list of the nation's housing units, mailed census forms to
those households, and asked the residents to mail back the completed
forms.  Temporary census-takers, known as enumerators, were then
hired by the hundreds of thousands to gather the required information
from each nonresponding household. 

Because the most accurate and cost-effective data have been provided
voluntarily on mailed back census forms, the key to the success of
the decennial census is public cooperation.  Over the years, however,
the public has become less and less willing to respond.  The
proliferation of surveys and solicitations in the mail, privacy
concerns, changes in household makeup and stability, and suspicions
about the uses to which government information is put have all played
a hand in eroding voluntary cooperation.  In addition, changes in the
labor market have reduced the number of people available for
temporary enumerator positions. 

By 1990, these problems had mounted to the point where the most
expensive census in history produced results that were less accurate
than those of the preceding census.  In part because enumerators had
to visit about 35 percent of all housing units in the United States,
costs rose 25 percent on a per-household, constant-dollar basis to
$25.  In large cities, more than 10 percent of the population was
counted, after up to six failed visits, through minimal information
provided by nonhousehold members and thus highly prone to error. 

Even more important, we estimated that 9.7 million persons, or 3.9
percent of the population, were not counted at all in 1990, although
this was partially offset in the net count by millions of persons who
were improperly included.  Furthermore, the net undercount was not
equally distributed.  According to the 1990 Post-Enumeration Survey,
4.99 percent of Hispanics were missed, and 4.57 percent of
African-Americans, but only 0.68 percent of non-Hispanic whites. 

On several occasions since 1992, we testified on the need for careful
advance planning to avoid the risk of a very expensive and seriously
flawed census in 2000.  In 1992, the Bureau of the Census estimated
that, without design changes, $4.8 billion in 1990 dollars would be
needed to carry out the design that cost $2.6 billion in 1990.  The
Bureau responded by deciding to make changes to the census design
with cost savings implications approaching or exceeding $1 billion. 
Several of these changes, such as streamlining the census
questionnaires, a more aggressive outreach and promotion program, and
greater use of the Postal Service to identify households, are aimed
at stopping the downward trend in the response rate, but it is
unclear whether these efforts will promote public cooperation at the
level needed for a successful census.  In anticipation of the need to
deal with an even larger nonresponse workload than in 1990, the
Bureau has designed statistical sampling and estimation procedures
that should be more accurate and cost-effective than visiting every
nonresponding household. 

The Constitution and court decisions clearly give the Congress
authority to determine the manner in which the census will be taken. 
However, the Census Bureau has so far failed to demonstrate
convincingly to the Congress exactly what effects sampling and
estimation would have at different levels of geographical detail.  As
a result, the Congress could choose to preclude the Bureau from
moving forward with its sampling plan. 

At this time, despite congressional concerns over its proposed
approach, the administration has done little to plan for the
possibility that greater amounts of funding than now anticipated may
be necessary to cover added personnel, facilities, and equipment
costs if sampling and estimation are not used.  Firm plans, careful
tests, and detailed preparations need to be decided on very soon. 
The 2000 Census "dress rehearsal" is only about a year away.  The
Bureau's 1997 funding request for census planning has been reduced 20
percent.  With limited funds and a fast-approaching deadline, the
available resources need to be focused on testing the census that
will actually be carried out. 

There is a high risk to the nation of an unsatisfactory census in
2000, and planning the census must have a higher priority than has
been evident so far.  The longer the delay in securing agreement over
design and funding, the more difficult it will be to execute an
effective census, and the more likely it will be that we will have
spent billions of dollars and still have demonstrably inaccurate
results.  Given the dependence of many decisions affecting
governments, businesses, and citizens on the results of the census,
the country can ill afford an unsatisfactory census at the turn of
the century, especially if it comes at a substantially higher cost
than previous censuses. 


   KEY CONTACT
--------------------------------------------------------- Chapter 24:1

Bernard L.  Ungar, Associate Director
Federal Management and Workforce Issues
General Government Division
202-512-4232


   RELATED GAO PRODUCTS
--------------------------------------------------------- Chapter 24:2

Addressing the Deficit:  Updating the Budgetary Implications of
Selected GAO Work (GAO/AIMD-96-5, June 28, 1996). 

Decennial Census:  Fundamental Design Decisions Merit Congressional
Attention (GAO/T-GGD-96-37, Oct.  25, 1995). 

Decennial Census:  1995 Test Census Presents Opportunities to
Evaluate New Census-Taking Methods (GAO/T-GGD-94-136, Sept.  27,
1994). 

Decennial Census:  Promising Proposals, Some Progress, But Challenges
Remain (GAO/T-GGD-94-80, Jan.  26, 1994). 

Decennial Census:  Test Design Proposals Are Promising, But
Fundamental Reform Is Still at Risk (GAO/T-GGD-94-12, Oct.  7, 1993). 

Decennial Census:  Focused Action Needed Soon to Achieve Fundamental
Breakthroughs (GAO/T-GGD-93-32, May 27, 1993). 

Decennial Census:  1990 Results Show Need for Fundamental Reform
(GAO/GGD-92-94, June 9, 1992). 


1997 HIGH-RISK SERIES
=========================================================== Chapter 25

An Overview (GAO/HR-97-1)

Quick Reference Guide (GAO/HR-97-2)

Defense Financial Management (GAO/HR-97-3)

Defense Contract Management (GAO/HR-97-4)

Defense Inventory Management (GAO/HR-97-5)

Defense Weapon Systems Acquisition (GAO/HR-97-6)

Defense Infrastructure (GAO/HR-97-7)

IRS Management (GAO/HR-97-8)

Information Management and Technology (GAO/HR-97-9)

Medicare (GAO/HR-97-10)

Student Financial Aid (GAO/HR-97-11)

Department of Housing and Urban Development (GAO/HR-97-12)

Department of Energy Contract Management (GAO/HR-97-13)

Superfund Program Management (GAO/HR-97-14)
























The entire series of 14 high-risk reports can be ordered by using the
order number GAO/HR-97-20SET. 

*** End of document. ***