Major Management Challenges and Program Risks: Department of
Transportation (Other Written Prod., 01/01/99, GAO/OCG-99-13).
This publication is part of GAO's performance and accountability series
which provides a comprehensive assessment of government management,
particularly the management challenges and program risks confronting
federal agencies. Using a "performance-based management" approach, this
landmark set of reports focuses on the results of government
programs--how they affect the American taxpayer--rather than on the
processes of government. This approach integrates thinking about
organization, product and service delivery, use of technology, and human
capital practices into every decision about the results that the
government hopes to achieve. The series includes an overview volume
discussing governmentwide management issues and 20 individual reports on
the challenges facing specific cabinet departments and independent
agencies. The reports take advantage of the wealth of new information
made possible by management reform legislation, including audited
financial statements for major federal agencies, mandated by the Chief
Financial Officers Act, and strategic and performance plans required by
the Government Performance and Results Act. In a companion volume to
this series, GAO also updates its high-risk list of government
operations and programs that are particularly vulnerable to waste,
fraud, abuse, and mismanagement.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: OCG-99-13
TITLE: Major Management Challenges and Program Risks: Department
of Transportation
DATE: 01/01/99
SUBJECT: Air traffic control systems
Management information systems
Information resources management
Road construction
Financial management
Accountability
Transportation safety
Risk management
Federal aid for transportation
Federal agency accounting systems
IDENTIFIER: FAA Airport Improvement Program
FAA Year 2000 Program
Y2K
Performance and Accountability Series 1999
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Cover
================================================================ COVER
Performance and Accountability Series
January 1999
MAJOR MANAGEMENT CHALLENGES AND
PROGRAM RISKS - DEPARTMENT OF
TRANSPORTATION
GAO/OCG-99-13
DOT Challenges
Abbreviations
=============================================================== ABBREV
CIO - chief information officer
DOT - Department of Transportation
FAA - Federal Aviation Administration
FHWA - Federal Highway Administration
FRA - Federal Railroad Administration
FTA - Federal Transit Administration
Letter
=============================================================== LETTER
January 1999
The President of the Senate
The Speaker of the House of Representatives
This report addresses the major performance and management challenges
that have limited the effectiveness of the Department of
Transportation (DOT) in carrying out its missions. It also addresses
corrective actions that DOT has taken or initiated on some of these
challenges and further actions that are needed. For many years, we
and others have documented challenges for the performance and
management of the Department that encompass major program areas--in
acquisition management, Year 2000 compliance, and safety and security
programs in the aviation area; acquisition management by the Coast
Guard; the oversight of large-dollar highway and transit projects;
and departmentwide financial management. In addition, we have
documented unique challenges facing airline competition and Amtrak's
financial viability.
Many of the challenges we identified are long-standing and will
require sustained attention by DOT and the Congress. While DOT has
efforts under way to address issues in some of its programs, these
activities are in the early stages of implementation. It will take
time to fully address the issues we and others have identified and to
assess whether the Department has resolved them. We have designated
as high risk two major challenges facing DOT--significant cost
overruns, schedule delays and performance shortfalls experienced by
the multibillion-dollar air traffic control modernization program and
serious financial management weaknesses at the Federal Aviation
Administration.
This report is part of a special series entitled the Performance and
Accountability Series: Major Management Challenges and Program
Risks. The series contains separate reports on 20 agencies--one on
each of the cabinet departments and on most major independent
agencies as well as the U.S. Postal Service. The series also
includes a governmentwide report that draws from the agency-specific
reports to identify the performance and management challenges
requiring attention across the federal government. As a companion
volume to this series, GAO is issuing an update to those government
operations and programs that its work has identified as "high risk"
because of their greater vulnerabilities to waste, fraud, abuse, and
mismanagement. High-risk government operations are also identified
and discussed in detail in the appropriate performance and
accountability series agency reports.
The performance and accountability series was done at the request of
the Majority Leader of the House of Representatives, Dick Armey; the
Chairman of the House Government Reform Committee, Dan Burton; the
Chairman of the House Budget Committee, John Kasich; the Chairman of
the Senate Committee on Governmental Affairs, Fred Thompson; the
Chairman of the Senate Budget Committee, Pete Domenici; and Senator
Larry Craig. The series was subsequently cosponsored by the Ranking
Minority Member of the House Government Reform Committee, Henry A.
Waxman; the Ranking Minority Member, Subcommittee on Government
Management, Information and Technology, House Government Reform
Committee, Dennis J. Kucinich; Senator Joseph I. Lieberman; and
Senator Carl Levin.
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, the Secretary of
Transportation, and the heads of other major departments and
agencies.
David M. Walker
Comptroller General of
the United States
OVERVIEW
============================================================ Chapter 0
With a budget of $48 billion in fiscal year 1999, the Department of
Transportation (DOT) faces critical challenges as it attempts to
ensure the safe and efficient movement of people and the
cost-effective investment of resources in the nation's transportation
infrastructure, including its highways and transit systems, airports,
airways, ports, and waterways. While DOT has had many successes in
improving the nation's transportation systems, it has also
experienced problems that have impeded its ability to achieve these
objectives. We, DOT's Inspector General, and the Department itself
have documented these problems and recommended solutions. Although
some actions have been taken to address these recommendations, major
performance and management challenges remain.
THE CHALLENGES
---------------------------------------------------------- Chapter 0:1
ACQUISITION OF MAJOR
AVIATION AND COAST GUARD
SYSTEMS LACKS ADEQUATE
MANAGEMENT AND PLANNING
-------------------------------------------------------- Chapter 0:1.1
The Federal Aviation Administration's (FAA) and the U.S. Coast
Guard's major acquisition programs continue to face significant
challenges that require management attention. Over the past 17
years, FAA's multibillion-dollar air traffic control modernization
program has experienced cost overruns, delays, and performance
shortfalls of large proportions. The Congress has appropriated over
$25 billion for the program through fiscal year 1998, and FAA
estimates that the program will need an additional $17 billion for
fiscal years 1999 through 2004. Because of its size, complexity,
cost, and problem-plagued past, we have designated this program as a
high-risk information technology initiative since 1995. The Coast
Guard is planning potentially the largest acquisition project in its
history, a 20-year, $9.8 billion project to replace or modernize many
of its ships and aircraft. However, we found that the Coast Guard
needs to more thoroughly address the project's justification and
affordability. For example, the remaining useful life of the
aircraft--and perhaps the ships--may be much longer than the agency
originally estimated. We recommended that DOT and the Coast Guard
take several steps to improve their planning process, such as
revising acquisition guidelines so future projects are based on
accurate and complete data.
SERIOUS CHALLENGES REMAIN IN
RESOLVING FAA'S YEAR 2000
RISKS
-------------------------------------------------------- Chapter 0:1.2
FAA faces considerable challenges in making its computer systems
ready for the year 2000. In August 1998, we testified that FAA was
unlikely to complete all critical tests in time and that unresolved
risks--including those associated with data exchanges, international
coordination, reliance on the telecommunications infrastructure, and
business continuity planning--threatened aviation operations. The
implications of FAA's not meeting the Year 2000 deadline are enormous
and could affect hundreds of thousands of people through customer's
inconvenience, increased airline costs, grounded or delayed flights,
or degraded levels of safety.
FAA AND THE NATION'S
AIRPORTS FACE FUNDING
UNCERTAINTIES
-------------------------------------------------------- Chapter 0:1.3
DOT and the Congress face a challenge in reaching agreement on the
amount and source of long-term financing for FAA and the nation's
airports. The National Civil Aviation Review Commission recently
recommended that the Congress fund FAA through a combination of
cost-based user charges, fuel taxes, and general fund revenues.
However, we and others have noted that FAA lacks sufficiently
detailed and reliable cost data to accurately determine the agency's
costs. In addition, continued funding for airports will be critical
to ensuring adequate capacity for the national airport system. From
1997 through 2001, planned development at airports might require as
much as $10 billion per year nationwide, which would need to be
obtained from a variety of public and private sources. Several
proposals to increase airports' funding have emerged in recent years,
including increasing the amount of funding from FAA, but many of them
are controversial.
AVIATION SAFETY AND SECURITY
PROGRAMS NEED STRENGTHENING
-------------------------------------------------------- Chapter 0:1.4
Over the years, we have identified numerous shortcomings in FAA's
safety and security programs. Shortcomings in FAA's safety programs
include the need for the agency to improve its oversight of the
aviation industry, record complete information on inspections and
enforcement actions, provide consistent information and adequate
training for users of weather information, and resolve data
protection issues to enhance the proactive use of recorded flight
data to prevent accidents. In addition, while progress has been made
in strengthening airport security, it will take years for FAA and the
aviation industry to fully implement current initiatives.
LACK OF AVIATION COMPETITION
CONTRIBUTES TO HIGH FARES
AND POOR SERVICE FOR SOME
COMMUNITIES
-------------------------------------------------------- Chapter 0:1.5
Although airline deregulation is generally considered to be a success
by DOT and others, contributing to better service and lower fares for
most travelers, not all communities have benefited from it. In a
number of small and medium-sized communities, a lack of aviation
competition contributes to higher fares and poorer service.
Operating barriers--such as exclusive-use gate leases and "slot"
controls that limit the number of takeoffs and landings at certain
congested airports--contribute to higher fares and service problems
by deterring new entrant airlines while fortifying established
airlines' dominance at key airports. Recently proposed alliances
between the nation's six largest airlines have raised additional
concerns about competition.
DOT NEEDS TO CONTINUE
IMPROVING OVERSIGHT OF
SURFACE TRANSPORTATION
PROJECTS
-------------------------------------------------------- Chapter 0:1.6
Many large-dollar highway and transit projects, each costing hundreds
of millions to billions of dollars, continue to incur cost increases,
experience delays, and have difficulties acquiring needed financing.
DOT's Federal Highway Administration provided over $21 billion in
fiscal year 1998 to assist the states in building and repairing
highways and bridges. We have identified several options to help
improve the management of these projects, particularly those
involving large amounts of dollars, depending on the oversight role
that the Congress chooses for the federal government. DOT's Federal
Transit Administration (FTA)--with a budget of $4.8 billion in fiscal
year 1998--has improved its oversight of federal transit grants.
However, the agency needs complete, timely information to help ensure
the correction of deficiencies found during its oversight reviews.
AMTRAK'S FINANCIAL CONDITION
IS TENUOUS
-------------------------------------------------------- Chapter 0:1.7
Despite efforts to control expenses and increase revenues, the
National Railroad Passenger Corporation's (Amtrak) financial
condition has substantially deteriorated in recent years. Since it
began operations in 1971, Amtrak has received nearly $22 billion in
federal subsidies for operating and capital expenses, and it is
likely to remain heavily dependent on federal assistance well into
the future. Amtrak loses about $2 for every dollar it earns in
revenues from its train service, and only 1 of Amtrak's 40 routes
covers its costs. Amtrak's deteriorating financial condition has
raised the possibility of both bankruptcy and liquidation. The
business decisions that Amtrak makes regarding the structure of its
route system will play a crucial role in determining its long-term
viability. While Amtrak has proposed cutting routes to improve its
overall financial performance, it has encountered opposition because
of the desire of local communities to see their service continued.
Because there is no clear public policy that defines the role of
passenger rail in the national transportation system and because
Amtrak is likely to remain dependent on federal assistance, the
Congress needs to decide on the nation's expectations for intercity
rail and the scope of Amtrak's mission in providing that service.
DOT LACKS ACCOUNTABILITY FOR
ITS FINANCIAL ACTIVITIES
-------------------------------------------------------- Chapter 0:1.8
DOT's lack of accountability for its financial activities impairs its
ability to efficiently and effectively manage programs and exposes
the Department to potential waste, fraud, mismanagement, and abuse.
Since 1993, when the Office of Inspector General began auditing the
financial statements of certain agencies within the Department, it
has been unable to determine whether the reported financial results
are correct and has thus been unable to express an opinion on the
reliability of these statements. The Inspector General also has been
unable to express an opinion on the reliability of the departmentwide
statements since these statements were audited beginning with fiscal
year 1996. A key issue affecting the ability to express an opinion
on these financial statements has been DOT's inability to reliably
determine the quantities, the locations, and the values of property,
plant, and equipment and inventory, reported at $28.5 billion as of
September 30, 1997. Serious financial management weaknesses at FAA
contribute to this situation. Consequently, we have designated
financial management at FAA as high-risk. In addition, DOT lacks a
cost-accounting system or an alternative means of reliably
accumulating and reporting the full cost of specific projects and
activities. Due to the effects of the property, plant, and
equipment, inventory, and cost-accounting deficiencies, it is
unlikely that DOT can accurately determine costs and meaningfully
link costs to performance measures.
PROGRESS AND NEXT STEPS
---------------------------------------------------------- Chapter 0:2
Many of the challenges facing DOT are not new to either the
Department or the Congress. Individual agencies within DOT have
efforts under way to address some of them, but more remains to be
done. For example, FAA has initiated activities to address many of
our concerns about its air traffic control modernization program,
such as developing a complete air traffic control systems
architecture, but none are completed. FAA is also taking steps to
address its Year 2000 challenges, such as working with the
International Civil Aviation Organization on international issues,
although much remains to be done. We are continuing to review FAA's
progress in these areas.
FAA will need to continue efforts to fully implement its
cost-accounting system so that it can use reliable and accurate data
to improve its management and performance and to establish user fees
as mandated by the Congress. While FAA is taking some steps to
address shortcomings with its aviation safety program, including
totally revamping its inspection program, eliminating the
shortcomings will take considerable time and effort. We are also
reviewing FAA's efforts in this area.
To improve FTA's oversight of transit grants, the agency needs to
complete implementation of a new information tracking system. This
system will enable headquarters officials to better oversee grantee's
performance. In addition, DOT has a plan for resolving the financial
management deficiencies that were identified in its financial
statement audits. However, the Department faces significant
challenges in achieving its goal of receiving an unqualified audit
opinion on its financial statements because of the numerous
shortcomings that need to be addressed. Although strategic and
annual performance plans, completed under the Government Performance
and Results Act of 1993, discuss several of the challenges we
identified, these plans generally provide insufficient details to
address them.
Adequately addressing many of the challenges we identified will
require sustained attention by DOT and the Congress. For example,
while DOT has attempted to enhance airline competition by such
efforts as granting a limited number of additional slots at two
airports, further actions, some of which are controversial, may be
needed by the Congress, DOT, and the private sector. Finally,
additional actions may be needed by the Congress to address long-term
financing for FAA, the federal oversight role for large-dollar
highway projects, and the future of Amtrak.
MAJOR PERFORMANCE AND MANAGEMENT
ISSUES
============================================================ Chapter 1
With a budget of $48 billion in fiscal year 1999, DOT is responsible
for ensuring the safe and efficient movement of people and the
cost-effective investment of resources in the nation's transportation
infrastructure, including its highways and transit systems, airports,
airways, ports, and waterways. DOT employs about 100,000 civilian
and military people across the country, and its programs are
administered by 10 operating administrations and bureaus.\1 While DOT
has had many successes in improving the nation's transportation
systems, it has also faced challenges that have impeded its ability
to achieve its objectives.
Over the years, we, DOT's Inspector General, the Department itself,
and others have documented shortcomings with the performance and
management of the Department and unique challenges facing air and
passenger rail travel. This report summarizes our recent findings
and recommended solutions concerning acquisition management by FAA
and the Coast Guard, Year 2000 compliance by FAA, long-term funding
for FAA and the nation's airports, aviation safety and security,
aviation competition, oversight of surface transportation projects,
Amtrak's financial condition, and financial management issues. This
report also describes how DOT has addressed some of its weaknesses
through plans that it has developed in response to the Government
Performance and Results Act. In many cases, addressing the
challenges we identified will require a sustained effort by DOT,
working with other federal, state, and local stakeholders and the
Congress.
--------------------
\1 DOT's administrations and bureaus are FAA, the Federal Highway
Administration, the Federal Railroad Administration, FTA, the
Maritime Administration, the National Highway Traffic Safety
Administration, the Research and Special Programs Administration, the
St. Lawrence Seaway Development Corporation, the U.S. Coast Guard,
and the Bureau of Transportation Statistics.
THE ACQUISITION OF MAJOR
AVIATION AND COAST GUARD
SYSTEMS LACKS ADEQUATE
MANAGEMENT AND PLANNING
---------------------------------------------------------- Chapter 1:1
FAA and the U.S. Coast Guard are undertaking long-term, costly
programs to modernize and replace aging equipment. Our work has
shown that these agencies need to improve the management of these
programs to ensure that federal funds are effectively and efficiently
used.
THE INADEQUATE MANAGEMENT OF
AIR TRAFFIC CONTROL
MODERNIZATION HAS LED TO
MANY DIFFICULTIES
-------------------------------------------------------- Chapter 1:1.1
Faced with rapidly growing volumes of air traffic and aging equipment
to control air traffic, in 1981 FAA initiated an ambitious air
traffic control modernization program. The cost of this
effort--which involves acquiring a vast network of radar and
automated data-processing, navigation, and communications equipment
and air traffic control facilities--is expected to total $42 billion
through fiscal year 2004. The Congress has appropriated over $25
billion of the $42 billion through fiscal year 1998, and FAA
estimates that the program will need an additional $17 billion for
fiscal years 1999 through 2004. Over the past 17 years, the
modernization program has experienced cost overruns, delays, and
performance shortfalls of large proportions. Because of its size,
complexity, cost, and problem-plagued past, we designated the air
traffic control modernization program as a high-risk information
technology initiative in 1995. Many of the shortcomings we reported
then remain unresolved, and we continue to believe this program
remains at high risk.
Our work has identified some of the root causes of the modernization
program's problems and pinpointed solutions to address them:
-- The many systems in the modernization program have been
developed without the benefit of a complete systems
architecture, or overall blueprint, to guide the program. The
result has been unnecessarily higher spending to buy, integrate,
and maintain hardware and software. We recommended that FAA
develop and enforce a complete systems architecture and
implement a management structure that is similar to the Chief
Information Officer (CIO) provisions of the Clinger-Cohen Act of
1996.
-- FAA lacks the reliable cost-estimating processes and
cost-accounting practices needed to effectively manage
information technology investments, leaving it at risk to make
ill-informed decisions on critical multimillion-, even billion-,
dollar air traffic control systems. We recommended that FAA
institutionalize defined processes for estimating the projects'
costs and develop and implement a managerial cost-accounting
capability.
-- FAA's processes for acquiring software, the most costly and
complex component of air traffic control systems, are ad hoc,
sometimes chaotic, and not repeatable across projects. As a
result, FAA is at great risk of not delivering promised software
capabilities on time and within budget. Furthermore, FAA lacks
an effective approach to improve software acquisition processes.
We recommended that FAA improve its software acquisition
capabilities by institutionalizing mature acquisition processes
and reiterated our prior recommendation that a CIO
organizational structure be established.
-- FAA's organizational culture has impaired the acquisition
process. Employees have acted in ways that did not reflect a
strong enough commitment to mission focus, accountability,
coordination, and adaptability. We recommended that FAA develop
a comprehensive strategy for addressing this issue.
FAA is responding to many of these recommendations. Specifically,
FAA has initiated activities to develop a complete air traffic
control systems architecture, to institutionalize defined
cost-estimating processes, to acquire a cost-accounting system, to
improve its software acquisition capabilities, and to improve its
organizational culture. Most recently, FAA has committed to hiring a
CIO who would report directly to FAA's Administrator, a structure
similar to the provisions of the Clinger-Cohen Act of 1996. In
addition, DOT's 1999 performance plan, which was submitted to the
Congress in February 1998, describes FAA's actions to improve certain
aspects of the air traffic control modernization program, such as
poor processes for estimating costs and poor accounting practices.
However, the plan does not include goals for mitigating the risks
associated with the modernization or measures for determining
progress towards these goals.
Moreover, in an effort to restructure the modernization program,
FAA--in consultation with the aviation community--is developing a
phased approach to modernization, including a new way of managing air
traffic known as "free flight." Free flight would allow pilots more
flexibility in choosing routes for their aircraft than the present
system of highly structured rules and procedures for air traffic
operations. Free flight, which will be implemented in phases, is
expected to provide benefits to users and help improve aviation
safety and efficiency. The agency, however, faces many challenges in
implementing free flight in a cost-effective manner. The challenges
for FAA include (1) providing effective leadership and management of
modernization efforts, (2) developing plans in collaboration with the
aviation community that are sufficiently detailed to move forward
with the implementation of free flight, and (3) addressing
outstanding issues related to the development and deployment of
technology.
While improvements have been initiated, FAA's efforts to address our
concerns are not yet completed, and several major systems development
projects continue to face challenges that could affect their costs,
schedules, and performance. For example, in March 1998 we reported
that the Standard Terminal Automation Replacement System--which
entails replacing old computers, controller workstations, and related
equipment at about 170 of FAA's terminal air traffic control
facilities--is facing difficulties staying within its cost baseline.
Costs for the new air traffic controller workstations are increasing
because of such unexpected factors as the need for additional
resources to maintain the program's schedule and design changes that
air traffic controllers called for after reviewing the equipment.
These unexpected factors led FAA to reprogram $29 million in fiscal
year 1998 funds for the project. In addition, the project's baseline
schedule called for equipment to become operational at the first
sites in December 1998. Since that time, we have reported that FAA
estimates that the project's cost has the potential to increase from
$294 million to $410 million over the approved baseline and that the
project's initial completion could be delayed by almost 2-1/2 years.
Additionally, we recently reported that FAA is not effectively
managing information security for future air traffic control
modernization systems. The agency does not consistently include
well-formulated security requirements in specifications for all new
modernization systems, as required by FAA policy. Furthermore, FAA
does not have a well-defined security architecture, a security
concept of operations, or security standards--all of which are needed
to define and help ensure adequate security throughout our nation's
air traffic control network. We recommended that FAA ensure that
specifications for all new air traffic control systems include
security requirements based on detailed security assessments and that
the agency establish and implement a security architecture, a
security concept of operations, and security standards. The agency
has not yet officially responded to our recommendations.
THE COAST GUARD NEEDS TO
MORE THOROUGHLY ADDRESS
ACQUISITION-PLANNING ISSUES
-------------------------------------------------------- Chapter 1:1.2
The U.S. Coast Guard is planning what is potentially the largest
acquisition project in its history. This effort, the Deepwater
Capability Replacement Project, involves replacing or modernizing
many of the Coast Guard's 92 ships and 209 airplanes and helicopters.
However, in October 1998, we reported that the Coast Guard needs to
more thoroughly address the project's justification and
affordability. The Coast Guard initially estimated that the project
would cost $9.8 billion (in constant dollars) over a 20-year period.
The project is still in its early stages, but initial planning
estimates call for spending $300 million starting in fiscal year 2001
and $500 million each year over the next 19 years.
Although the Coast Guard is correct in starting now to explore how
best to modernize or replace its deepwater ships and aircraft, the
Deepwater Project's only formal justification that was developed at
the time of our review did not accurately or fully depict the need
for replacement or modernization. In fact, the remaining useful life
of the Coast Guard's deepwater aircraft--and perhaps its ships--may
be much longer than the agency originally estimated. The Coast Guard
withdrew the justification on the basis of concerns expressed by the
Office of Management and Budget and is developing more accurate and
updated information. We recommended that DOT and the Coast Guard
take several steps to improve their planning processes, such as
expediting the development and the issuance of updated information on
the remaining service life of ships and aircraft and revising its
acquisition guidelines so that future projects are based on more
accurate and complete data. In addition, the agency could face major
financial obstacles in proceeding with a project that costs as much
as initially proposed. At an estimated $500 million a year,
expenditures for the project would take virtually all of the Coast
Guard's anticipated spending for capital projects. To align
contractors' proposals more realistically with the agency's budget
and other capital needs, we recommended that the Coast Guard evaluate
whether contractors should base their proposals on a funding level
that may be lower than $500 million each year. While Coast Guard
officials seemed receptive to our recommendations, DOT has not
officially responded to our report.
KEY CONTACTS
-------------------------------------------------------- Chapter 1:1.3
John H. Anderson, Jr., Director
Transportation Issues
Resources, Community, and Economic
Development Division
(202) 512-2834
[email protected]
Joel C. Willemssen, Director
Civil Agencies Information Systems
Accounting and Information Management
Division
(202) 512-6408
[email protected]
SERIOUS CHALLENGES REMAIN IN
RESOLVING FAA'S YEAR 2000 RISKS
---------------------------------------------------------- Chapter 1:2
To perform its mission, FAA depends on an extensive array of
information-processing and communications technologies. Without
these specialized computer systems, the agency could not effectively
control air traffic, target airlines for inspection, or provide
up-to-date weather information to pilots and air traffic controllers.
For example, each of FAA's 20 en route air traffic control
facilities, which monitor aircraft at the higher altitudes between
airports, depends on about 50 interrelated computer systems to safely
guide and direct aircraft. The implications of FAA's not meeting the
Year 2000 deadline are enormous and could affect hundreds of
thousands of people through customers' inconvenience, increased
airline costs, grounded or delayed flights, or degraded levels of
safety.
In early 1998, we reported that FAA was severely behind schedule in
implementing an effective Year 2000 program and warned that systems
that support critical operations--such as monitoring and controlling
air traffic--could fail to perform as needed unless proper
date-related calculations could be ensured. We made a series of
recommendations aimed at assisting FAA in completing critical Year
2000 activities, including (1) completing an agencywide plan that
provides the FAA Year 2000 program manager with the authority to
enforce policy and that outlines the agency's overall strategy and
(2) completing inventories and assessments of all systems and data
interfaces. FAA agreed with these recommendations and has made
progress in implementing them. For example, a Year 2000 program
manager now reports directly to FAA's Administrator and oversees a
program plan with specific goals and milestones.
More recently, however, we testified that FAA still faces serious
challenges in addressing its Year 2000 problem. Specifically, in
August 1998, we testified that FAA was unlikely to complete critical
testing activities in time because its projections for completing
testing and implementation activities were based on very optimistic
schedules and because of the complexity of the agency's testing
process. We also reported that unresolved crosscutting
risks--including risks associated with data exchanges, international
coordination, reliance on the telecommunications infrastructure, and
business continuity planning--threatened aviation operations. FAA is
taking steps to address these issues. For example, FAA is working
with the International Civil Aviation Organization on international
issues. We are continuing to review FAA's progress in addressing
these risks.
KEY CONTACT
-------------------------------------------------------- Chapter 1:2.1
Joel C. Willemssen, Director
Civil Agencies Information Systems
Accounting and Information Management
Division
(202) 512-6408
[email protected]
FAA AND THE NATION'S AIRPORTS
FACE FUNDING UNCERTAINTIES
---------------------------------------------------------- Chapter 1:3
DOT and the Congress face a challenge in reaching agreement on the
amount and source of long-term financing for FAA and the nation's
airports. At present, FAA's funding is made available by the
Congress from general fund and Airport and Airway Trust Fund
appropriations, which was established to finance FAA's investments in
the airport and airway system, including construction and safety
improvements at airports and technological upgrades to the air
traffic control system. The Trust Fund receives revenues from taxes
on domestic and international travel, domestic cargo transported by
air, and noncommercial aviation fuel. With the uncommitted balance
in the Trust Fund estimated to increase to over $40 billion by 2008,
some have advocated taking the fund off budget to allow FAA to spend
all of the revenues collected from aviation taxes. Despite several
assessments over the past 2 years, a consensus does not exist
regarding how to meet FAA's future funding needs.\2
The latest proposal for funding FAA comes from the National Civil
Aviation Review Commission, which recommends that the Congress fund
FAA through a combination of cost-based user charges, fuel taxes, and
general fund revenues. In the past, we and others have noted that
FAA has lacked sufficiently detailed or reliable cost data. These
concerns are still relevant. The Commission's report acknowledges
that reliable, comprehensive cost-accounting data are needed to
accurately determine the agency's costs. FAA has begun implementing
a cost-accounting system, which will be a cornerstone for FAA's
improving its efficiency. Program officials had planned to begin
collecting cost data for air traffic services by October 1998, but
complications associated with the method used to allocate costs have
delayed this milestone. FAA will need to continue with efforts to
fully implement its cost-accounting system so that it can use
reliable and accurate data to improve its management and performance
and to establish user fees, as mandated by the Congress.
Continued funding for airports will also be critical to ensuring
adequate capacity for the national airport system and avoiding
congestion and delays. In April 1997, we reported that planned
development at airports might cost as much as $10 billion per year
over the next 5 years. Airports rely on a variety of public and
private funding sources to finance their capital development. In
1996, $1.4 billion in federal funding was made available for capital
development from the Airport and Airway Trust Fund. Other major
sources of funding include airport and special facility bonds and
passenger facility charges paid on each airline ticket. The amount
and type of funding vary with each airport's size. While the need
for funding at larger airports may be considerable, these airports
also have access to many funding sources, particularly tax-exempt
bonds. The more difficult challenge may rest with meeting the
funding needs of smaller airports. Smaller airports confront a
potential funding shortfall that, in percentage terms, is far greater
than for larger airports. Moreover, these airports have the fewest
funding options, relying on federal grants for half of their funding.
Maintaining the financial viability of these smaller airports will
require adequate funding from existing federal and state grant
programs as well as more innovative applications of existing funding.
Several proposals to increase airport funding have emerged in recent
years. These include increasing the amount of funding for FAA's
Airport Improvement Program, raising or eliminating the ceiling on
passenger facility charges, and leveraging existing funding sources.
Many of these proposals are controversial and vary in the degree to
which they help specific types of airports. For example, increasing
the amount of funding for the Airport Improvement Program would help
smaller airports more, while raising passenger facility charges would
help larger airports more. In addition, airports and airlines have
disagreed on the need to increase the ceiling on passenger facility
charges above its current $3.00 level. Airport officials contend
that many needed projects are going unfunded, while airline
representatives dispute this, saying that airlines are willing to
fund important projects through airline assessments. To address the
funding issue, FAA has been testing several innovative funding
approaches through a small pilot program. However, we believe that
this pilot program is likely to yield only marginal benefits because
of the limited participation by airports.
--------------------
\2 See Federal Aviation Administration: Independent Financial
Assessment, Coopers & Lybrand (Feb. 28, 1997); Avoiding Aviation
Gridlock & Reducing the Accident Rate, National Civil Aviation Review
Commission (Dec. 1997); and Air Traffic Control: Issues in
Allocating Costs for Air Traffic Services to DOD and Other Users
(GAO/RCED-97-106, Apr. 25, 1997).
KEY CONTACT
-------------------------------------------------------- Chapter 1:3.1
John H. Anderson, Jr., Director
Transportation Issues
Resources, Community, and Economic
Development Division
(202) 512-2834
[email protected]
AVIATION SAFETY AND SECURITY
PROGRAMS NEED STRENGTHENING
---------------------------------------------------------- Chapter 1:4
The aviation accident rate per mile traveled has remained low but
flat over the last 2 decades. Unless the accident rate is reduced,
however, as air travel continues to grow, the actual number of
accidents will increase. We have identified numerous weaknesses in
FAA's inspection, oversight, and enforcement activities. During the
last year, we have also noted shortcomings in other safety programs,
such as (1) the lack of consistent information or adequate training
for users of weather information and (2) unresolved data protection
issues, which impede the proactive use of flight data to prevent
accidents. While FAA is taking some steps to address the
shortcomings in its safety programs, eliminating those shortcomings
will take considerable time and effort. In addition, while progress
is being made in strengthening airport security, it will take several
years to address all problem areas, and FAA's weak computer security
practices present significant vulnerabilities to the air traffic
control system.
WEAKNESSES IN AVIATION
SAFETY PROGRAMS NEED TO BE
ADDRESSED
-------------------------------------------------------- Chapter 1:4.1
We have found substantial weaknesses in FAA's safety inspection,
oversight, and enforcement activities. FAA's aviation safety
programs provide for the initial certification, periodic
surveillance, and inspection of airlines, airports, repair stations,
and other aviation entities, as well as of pilots and mechanics.
These inspections are intended not only to detect actual violations
but also to serve as part of an early warning system for identifying
potential systemwide weaknesses.
Over the years, we have examined FAA's inspection program and
recommended improvements. In our most recent report, we pointed out
that work performed by aviation repair stations--the 2,800 facilities
that repair and maintain nearly half of all U.S. passenger and cargo
aircraft--was cited as a factor in several accidents. About 600 of
FAA's 3,000 inspectors are responsible for inspecting repair stations
to ensure that work conducted by these facilities is competently
done. FAA is meeting its goal of inspecting every repair station at
least once a year by relying primarily on reviews by individual
inspectors. However, when FAA uses teams rather than individual
inspectors to review facilities, the review is more effective,
uncovering more systemic and long-standing problems. Furthermore, we
could not find sufficient documentation to determine how well FAA
followed up to ensure that the deficiencies found during the
inspections were corrected.
To improve its oversight of repair stations, we recommended that FAA
expand the use of locally based teams to inspect them, particularly
those that are large, are complex, have higher rates of
noncompliance, or meet predetermined risk indicators. In addition,
we recommended that FAA specify what documentation should be kept on
inspection results, monitor efforts to improve the quality of data
for its new management information system, and expedite efforts to
upgrade regulations concerning the oversight of repair stations. FAA
agreed with these recommendations but has not indicated how or when
they would be implemented.
When FAA's inspectors identify violations, agencywide guidance
requires that they be investigated and appropriately addressed, and
program office guidance requires that they be reported. We found
that FAA's information on compliance in the aviation industry is
incomplete and of limited use in providing early warning of potential
risks and in targeting inspection resources to the greatest risks.
Many inspectors do not report all problems or violations they
observe, and many inspections are not thorough or structured enough
to detect many violations. In addition, FAA cannot readily set
risk-based priorities for resolving enforcement cases, in part,
because its enforcement database does not distinguish major from
minor cases. Finally, the impact of FAA's enforcement actions on
compliance is difficult to assess because the agency has not followed
up on the aviation industry's implementation of corrective actions.
We recommended several actions to improve the usefulness of FAA's
inspection and enforcement databases and the coordination of
inspection and enforcement efforts, including (1) revising FAA's
order on compliance and enforcement to specify that inspection staff
are required to report all observed problems and violations and (2)
providing guidance to inspectors on how to distinguish major from
minor violations and to legal staff on how to identify major legal
cases. In response to our recommendations and others' criticisms,
FAA has developed and begun to implement a fundamentally reengineered
system--the Air Transportation Oversight System--to oversee airline
safety. We are monitoring the program's implementation and will
report on its progress in the spring of 1999.
Poor weather conditions have been cited as a cause or a contributing
factor in nearly a quarter of the aviation accidents during the last
10 years. Because of the significant impact of hazardous weather on
aviation safety and efficiency, improving the weather information
available to all users of the aviation system should be one of FAA's
top priorities. However, a panel of experts that we convened
concluded that FAA has done a poor job in addressing the most
significant concerns raised by previous reports by the National
Research Council and an FAA advisory committee. For example, the
panel concluded that FAA has not exercised leadership for aviation
weather services, partly because it has lacked a clear policy
defining its role in aviation weather activities and partly because
of organizational inefficiencies. The panel also concluded that
providing consistent weather information and training for users has
remained a low priority for FAA. The implementation plan FAA
proposes to issue later this year provides the agency with an
opportunity to respond to these continuing concerns with stronger
evidence of its commitment to weather issues.
The analysis of aircraft data recorded during flight has played a
crucial role in determining the causes of crashes. Recently,
however, some airlines have begun to proactively analyze flight data
from uneventful airline flights to identify potential problems and
correct them before they lead to accidents. The early experiences of
airlines that have established such programs--called Flight
Operational Quality Assurance programs--attest to the ability of such
programs to enhance aviation safety. In December 1997, we reported
that 4 U.S. airlines and 33 foreign airlines had implemented such
programs. The primary factor impeding further implementation is
unresolved data protection issues. Airline managers and pilots have
raised concerns about the use of such data by FAA for enforcement or
disciplinary purposes and about disclosure to the media and public.
The Federal Aviation Administration Reauthorization Act of 1996
directed the Administrator to issue regulations protecting data
collected under the programs from public disclosure. As of November
1998, FAA had not issued a rulemaking to implement policies on either
enforcement or disclosure.
DOT's 1999 performance plan includes a goal to improve aviation
safety by reducing by 80 percent the number of fatal aviation
accidents per 100,000 departures by 2007. However, the plan needs
baseline data from which to measure the reduction.
CHALLENGES REMAIN IN
ADDRESSING AVIATION SECURITY
ISSUES
-------------------------------------------------------- Chapter 1:4.2
Over the last several years, the changing threat of terrorist
activities has heightened the need to improve domestic aviation
security. We and others have highlighted improvements needed to
address this threat. As a result, FAA is implementing
recommendations made in February 1997 by the White House Commission
on Aviation Safety and Security (the Gore Commission) and mandates
contained in the Federal Aviation Administration Reauthorization Act
of 1996 to improve security at airports. Expeditious implementation
of the security initiatives by FAA and the aviation industry is
crucial to improving the security of domestic aviation.
FAA has made some progress in five critical areas as recommended by
the Gore Commission and mandated by the Congress, but, given the
current implementation schedule, it will take years for FAA and the
aviation industry to fully implement all the initiatives. These five
areas, which we reported on in May 1998, are passenger profiling,
explosives detection technologies, passenger-bag matching,
vulnerability assessments, and the certification of screening
companies and the performance of security screeners. We reported
that FAA had encountered delays of up to 12 months in implementing
these initiatives, in part, because they are more complex than
originally envisioned and involve new and relatively untested
technologies. Delays have also been caused by limited funding and
problems with equipment installation and contractors' performance.
While progress has been made in strengthening aviation security,
completing the current initiatives will require additional financial
resources and a sustained commitment by the federal government and
the aviation industry. For example, current funding is sufficient to
provide only a limited percentage of the flying public at selected
airports with protection against concealed explosives in checked
baggage. Several years ago, FAA estimated that the cost of acquiring
and installing the certified systems at the nation's 75 busiest
airports could range from $400 million to $2.2 billion, depending on
the number and the cost of the machines installed.
Additional improvements in airport security will need sustained,
long-term efforts by FAA and the aviation industry. To maintain
momentum, it is important for the Congress to provide continual
oversight and to address funding issues. Starting with fiscal year
1998, FAA began including goals and specific performance measures for
its security program in its annual budget submissions. FAA also
incorporated goals and performance measures for airport security into
its 1998 strategic plan. By using these established goals and
performance measures, the Congress can better oversee FAA's progress
in improving airport security.
Securing our nation's airports alone does not ensure safe air travel.
It is also critical to secure FAA's air traffic control computer
systems that provide information to air traffic controllers and
aircraft flight crews to help ensure the safe and expeditious
movement of aircraft. A failure to adequately protect these systems,
as well as the facilities that house them, could cause a nationwide
disruption of air traffic or even the loss of life due to collisions.
We found that FAA is ineffective in all the critical areas included
in our computer security review of its air traffic control computer
systems.
In the area of physical security, known weaknesses exist at many air
traffic control facilities. For example, a March 1997 inspection of
one facility that controls aircraft disclosed numerous physical
security weaknesses, including unauthorized personnel being granted
unescorted access to restricted areas. FAA did not know of
weaknesses that may have existed at other locations because it had
not assessed the physical security controls at 187 facilities since
1993. Similarly, FAA does not know how vulnerable its operational
air traffic control systems are and cannot adequately protect them
until it performs the appropriate risk assessments of these systems
and certifies and accredits them. In addition, the agency does not
consistently include well-formulated security requirements in its
specifications for new modernization systems. Finally, FAA's
management structure and implementation of policy for air traffic
control computer security are not effective. Security
responsibilities are distributed among three organizations, all of
which have been remiss in their security duties.
In December 1998, we reported that FAA officials indicated that they
had inspected all 368 facilities and had accredited over half of
these facilities. However, the agency still needs to take action on
our remaining recommendations that included (1) ensuring that all
systems are assessed, certified, and accredited at least every 3
years and (2) establishing an effective management structure for
developing, implementing, and enforcing air traffic computer security
policy.
KEY CONTACTS
-------------------------------------------------------- Chapter 1:4.3
John H. Anderson, Jr., Director
Transportation Issues
Resources, Community, and Economic
Development Division
(202) 512-2834
[email protected]
Joel C. Willemssen, Director
Civil Agencies Information Systems
Accounting and Information Management
Division
(202) 512-6408
[email protected]
LACK OF AVIATION COMPETITION
CONTRIBUTES TO HIGH FARES AND
POOR SERVICE FOR SOME
COMMUNITIES
---------------------------------------------------------- Chapter 1:5
Deregulation of the airline industry in 1978 is generally considered
to be a success by DOT and others, contributing to lower fares and
better service for most air travelers largely because of increased
competition spurred by the entry of new airlines into the industry
and established airlines into new markets. However, a number of
small and medium-sized communities have not experienced such entry
and thus have experienced higher fares and/or less convenient service
since deregulation.
Problems with access to certain airports and the cumulative effect of
marketing strategies employed by established airlines have
contributed to higher fares and poor service. To minimize congestion
and reduce flight delays, FAA has set limits since 1969 on the number
of takeoffs or landings--referred to as slots--that can occur during
certain periods of the day at four congested airports--Chicago's
O'Hare, Ronald Reagan Washington National, and New York's Kennedy and
LaGuardia. A few airlines control most of the slots at these
airports, which limits new entrants. Furthermore, the vast majority
of gates at six airports in the East and Upper Midwest are
exclusively leased--usually to just one airline--making it very
difficult for other airlines to gain competitive access to these
airports. In addition, by prohibiting flights to and from LaGuardia
and National airports that exceed certain distances, perimeter rules
limit the ability of airlines based in the West to compete at these
airports. These operating barriers, combined with certain marketing
strategies by established carriers, have deterred new entrant
airlines while fortifying established carriers' dominance at key
hubs.
In addition, recently proposed alliances between the nation's six
largest airlines have also raised concerns about competition. Three
pairs of alliances have been proposed--between Northwest Airlines and
Continental Airlines, Delta Air Lines and United Airlines, and
American Airlines and US Airways. In June 1998, we testified that,
while the alliances might offer some benefits to consumers, if all
three occur, the number of independent airlines providing service on
a significant number of domestic airline routes could decline,
potentially reducing the choices for millions of passengers each
year. We are further reviewing the proposed alliances and plan to
report on them early in 1999.
Increasing competition and improving air service at airports serving
communities that have not benefited from deregulation will likely
entail a range of solutions--some of which are controversial--by DOT,
the Congress, and the private sector. To enhance competition, DOT
has begun to grant a limited number of slots to new entrants at
O'Hare and LaGuardia airports. In addition, DOT has expressed
concerns about potentially overaggressive attempts by some
established carriers to thwart new entry. According to DOT, in
recent years, there has been an increasing number of alleged
anticompetitive practices--such as predatory conduct--aimed at new
competition, particularly at major hubs. In April 1998, DOT issued a
draft policy that identifies anticompetitive behavior and factors
that DOT will consider if it decides to pursue formal enforcement
actions to correct such behavior. The proposed guidelines have been
very controversial, and DOT has received hundreds of comments about
them. The Omnibus Consolidated and Emergency Supplemental
Appropriations Act for Fiscal Year 1999 requires DOT to send the
final guidelines to the Congress and stipulates that they shall not
become effective until at least 12 weeks after receipt.
In addition, legislation was introduced, but not passed, in the
Congress in 1997 that addressed several barriers to competition:
slot controls, perimeter rules, and predatory behavior by air
carriers. These issues are expected to be raised again by the next
Congress. Other issues--such as improving the availability of gates
and determining whether or not to relax restrictions on the foreign
ownership and control of U.S. airlines--may also need to be
considered. DOT expects to complete a study in the spring of 1999
that will address airports' practices, including the availability of
gates, and their effects on competition.
KEY CONTACT
-------------------------------------------------------- Chapter 1:5.1
John H. Anderson, Jr., Director
Transportation Issues
Resources, Community, and Economic
Development Division
(202) 512-2834
[email protected]
DOT NEEDS TO CONTINUE IMPROVING
OVERSIGHT OF SURFACE
TRANSPORTATION PROJECTS
---------------------------------------------------------- Chapter 1:6
Many large-dollar highway and transit projects, each costing hundreds
of millions to billions of dollars, continue to incur cost increases,
experience delays, and have difficulties acquiring needed financing.
We have found, particularly for large-dollar projects, that costs
have increased and financing has become more difficult at the same
time that federal, state, and local governments must deal with the
need for balanced budgets and many competing priorities. This
situation is even more critical in light of the recently passed
6-year, $218 billion Transportation Equity Act for the 21st Century,
which will fund thousands of new major highway and mass transit
projects.
IMPROVEMENTS POSSIBLE IN
OVERSIGHT OF HIGHWAY
PROJECTS
-------------------------------------------------------- Chapter 1:6.1
DOT's Federal Highway Administration (FHWA) provided over $21 billion
in fiscal year 1998 to assist the states in repairing and replacing
their aging infrastructure and enhancing the performance of their
highways and bridges. In many cases, meeting these needs takes the
form of projects costing hundreds of millions to billions of dollars.
These projects traditionally take longer to build and have a greater
potential to experience substantial cost increases and delays. For
example, the Central Artery/Tunnel project in Boston is the most
expensive and complex federally assisted highway project ever
undertaken. Scheduled to be completed in 2004, the project will
build or reconstruct about 7.5 miles of urban highways, about half of
which will be underground. The state of Massachusetts has been
taking steps to contain costs, but, unless additional savings can be
found, increased construction costs are likely to push the project's
total net cost higher than the current $10.8 billion estimate.
In February 1997, we reported several options that could improve the
management of large-dollar highway projects, depending on the
oversight role that the Congress chooses for the federal government.
-- One option--once DOT or the Congress establishes an appropriate
dollar threshold and definition for large-dollar highway
projects--would be for states to prepare total cost estimates
for such projects. We have found that one reason costs increase
on large-dollar projects over time is that the initial cost
estimates are preliminary and not designed to be reliable
predictors of a project's total costs.
-- Another option would be for states to track progress on these
projects against their initial estimates of baseline costs.
While cost growth has occurred on many large-dollar projects,
the amount of and reasons for these increases cannot be
determined because data are not readily available from FHWA or
state highway departments. Preparing estimates of baseline
costs and schedules could improve the management of large-dollar
projects by providing managers with real-time information for
identifying problems early and for making decisions about
changes to the projects that could affect costs. Tracking
progress could also create a database that would allow for the
identification of problems commonly experienced by projects and
would provide a better basis for estimating costs in the future.
-- Another option would be to establish performance goals and
strategies for controlling costs as a large-dollar project moves
through its design and construction phases.
-- Finally, another option would be to establish a process for the
federal approval of large-dollar projects. FHWA does not
approve projects at their outset; its approval consists of a
series of incremental approvals that occur over the years
required to plan, design, and build them. Requiring federal
approval at the outset--including the approval of cost estimates
and finance plans--could provide greater certainty in state
planning and could help ensure successful financing by providing
additional assurances to potential funding sources.
The Congress has recently taken steps to improve the management of
large-dollar highway projects. The Transportation Equity Act for the
21st Century requires the states to submit finance plans for highway
projects that are expected to cost $1 billion or more. However, it
will be up to FHWA to develop regulations that indicate the specific
standards and information requirements for these plans.
OVERSIGHT OF TRANSIT PROJECTS
IMPROVING, BUT BETTER FOLLOW-UP
ON NONCOMPLIANCE NEEDED
---------------------------------------------------------- Chapter 1:7
The Federal Transit Administration (FTA)--with a budget of $4.8
billion for fiscal year 1998--has improved its oversight of federal
transit grants. However, the agency needs to continue to do more to
help ensure the timely correction of deficiencies found during its
oversight reviews. In 1992, we designated FTA's management and
oversight of its grants as a high-risk area that was especially
vulnerable to fraud, waste, abuse, and mismanagement. In 1995, as a
result of various initiatives that FTA was undertaking to improve its
grants management oversight, we removed the agency from our high-risk
list with the understanding that we would continue to monitor the
progress of its oversight initiatives. In April 1998, we reported
that FTA had strengthened its oversight of federal transit grants.
FTA is continuing to enhance the quality and the consistency of its
oversight by improving guidance and training for staff and grantees,
standardizing oversight procedures, and effectively using contractor
staff. In particular, the agency's risk assessment process helps
target limited oversight resources and provides a strong foundation
for improved oversight. FTA is emphasizing not only the local
financial commitment of grantees seeking federal funding for new
projects but is also hiring financial management contractors to
review and oversee the financial viability of projects with existing
grant agreements.
However, FTA needs to continue to do more to help ensure the timely
correction of deficiencies found during its oversight reviews of
transit grants. We found that, frequently, some grantees still did
not meet FTA's time frames for corrective action and that FTA had
allowed compliance deadlines to be revised, which enabled grantees to
delay corrective action. Also, FTA's oversight information system
lacks complete, timely data; hence, the information cannot be used
effectively by FTA's headquarters officials to manage and monitor
grantees' compliance with the agency's requirements. The system is
intended to track the resolution of oversight findings and has the
potential to be a useful tool in monitoring compliance, identifying
problems, and assessing the overall effectiveness of the oversight
program in meeting performance standards. Currently, however, the
information in the system is not updated as required by regional
staff, nor is it used by headquarters officials to help manage or
monitor the oversight activities of regional staff--leaving FTA
susceptible to and unable to quickly respond to situations in its
regional offices that might compromise good oversight. According to
FTA, a new tracking system has been developed to address these
concerns, but it has not been fully implemented yet.
KEY CONTACT
-------------------------------------------------------- Chapter 1:7.1
John H. Anderson, Jr., Director
Transportation Issues
Resources, Community, and Economic
Development Division
(202) 512-2834
[email protected]
AMTRAK'S FINANCIAL CONDITION IS
TENUOUS
---------------------------------------------------------- Chapter 1:8
Since it began operations in 1971, Amtrak has never been profitable
and, in recent years, has had to borrow money to meet its operating
expenses. Since its inception, Amtrak has received nearly $22
billion in federal subsidies for operating and capital expenses.
Despite efforts to control expenses and increase revenues, Amtrak's
financial condition has substantially deteriorated in recent years,
and it is likely to remain heavily dependent on federal assistance
well into the future. In fiscal year 1998, Amtrak's annual net loss
was $854 million, $92 million more than its 1997 net loss of $762
million.
Amtrak has stated that it will eliminate the need for federal
operating support by 2002. If Amtrak requires federal operating
subsidies after December 2002, the Amtrak Reform and Accountability
Act of 1997 provides for the Congress to consider either
restructuring or liquidating Amtrak. Predicting how Amtrak might be
restructured is difficult. In a liquidation, not only might Amtrak's
creditors (or their insurers) face losses, but the 100 million
passengers each year in the Northeast Corridor, as well as millions
of others in the rest of the country, could face disrupted rail
service. At the time of liquidation, the losses suffered by
creditors will depend on such circumstances as Amtrak's debt and
financial obligations and the market value of its assets, as well as
the proceeds from their sale. As of September 1997, Amtrak's data
showed that combined secured and unsecured debt liability could be
about $2.2 billion. We believe, and DOT agrees, that the federal
government would not be legally liable for secured and unsecured
creditors' claims in the event of Amtrak's liquidation.
Nevertheless, we recognize that creditors could attempt to recover
losses from the United States.
The financial performance of Amtrak's intercity routes is indicative
of Amtrak's financial problems. In 1997, expenses for Amtrak's core
intercity passenger services were almost twice as great as
revenues.\3 Moreover, Amtrak's expenses were at least twice as much
as its revenues for 28 of its 40 routes in that year. Amtrak's
expenses on 11 of these routes were 2-1/2 times or more than its
revenues for each route. Finally, 14 routes lost more than $100 per
passenger carried. Only one route--the Metroliner's high-speed
service between Washington, D.C., and New York City--was profitable.
Recently, Amtrak has focused on improving its financial performance
by identifying growth opportunities rather than by reducing service.
In explaining the rationale for not cutting Amtrak's route system
further at this time, officials at Amtrak and the Federal Railroad
Administration (FRA) pointed to Amtrak's mission of maintaining a
national route system, noting that such a system will consist of
routes with a range of profitability, including routes with lower
performance that may provide connecting service with other routes or
that may provide public benefits, such as serving small cities and
rural areas. In the spring of 1998, Amtrak started a year-long
market analysis of the role and growth potential of the national
route system. The analysis is to assess service, demand, and
revenues on Amtrak's current route system and alternative systems.
The analysis will be used to identify service amenities, price
changes, and changes to the existing route system that may improve
ridership and revenues.
Because it loses money on 39 of its 40 routes, the business decisions
that Amtrak makes regarding the structure of its route system will
play a crucial role in determining its long-term viability. However,
Amtrak has encountered opposition when it has proposed to cut routes
to improve its overall financial performance because of the desire of
local communities to see passenger service continued. FRA officials
acknowledge that no clear public policy currently defines the role of
passenger rail in the national transportation system. As a result,
the Congress needs to decide on the nation's expectations for
intercity rail and the scope of Amtrak's mission in providing that
service. These decisions require defining expectations for a route
network, determining the extent to which the government would
contribute funds, and deciding on the way any remaining deficits, if
any, would be covered. We believe that Amtrak, as currently
constituted, will need substantial federal operating and capital
support well into the future. Whether Amtrak will be able to improve
its position substantially in the near term is doubtful. If not, the
Congress will be asked to provide substantial sums of money each year
to support Amtrak. If the Congress is not willing to provide such
levels of funds, then Amtrak's future could be radically different,
or Amtrak may not exist at all.
--------------------
\3 Overall, Amtrak's expenses were $1.86 for every dollar in
operating revenue that it earned. Core intercity passenger services
include mail and express merchandise services but exclude revenues
and expenses from Amtrak's commuter operations, other reimbursable
activities, and commercial development. Expense amounts include
depreciation, which is a noncash expense.
KEY CONTACT
-------------------------------------------------------- Chapter 1:8.1
John H. Anderson, Jr., Director
Transportation Issues
Resources, Community, and Economic
Development Division
(202) 512-2834
[email protected]
DOT LACKS ACCOUNTABILITY FOR
ITS FINANCIAL ACTIVITIES
---------------------------------------------------------- Chapter 1:9
DOT's lack of accountability for its financial activities impairs its
ability to efficiently and effectively manage programs and exposes
the Department to potential waste, fraud, mismanagement, and abuse.
Since 1993, when the Office of Inspector General began auditing the
financial statements of certain agencies within the Department, it
has been unable to determine whether the reported financial results
are correct and thus has been unable to express an opinion on the
reliability of those statements. The Inspector General has also been
unable to express an opinion on the reliability of the departmentwide
statements since those statements were audited beginning with fiscal
year 1996. In addition, DOT lacks a cost-accounting system or an
alternative means of accumulating the full cost of specific projects
and activities. DOT has efforts under way to correct its financial
management deficiencies, but its goal of correcting all deficiencies
for its fiscal year 1999 financial statement may be difficult to
attain because of the numerous problems that need to be addressed.
THE ACCURACY OF FINANCIAL
DATA IS UNCERTAIN
-------------------------------------------------------- Chapter 1:9.1
On March 31, 1998, the Office of Inspector General was unable to
express an opinion on the reliability of the departmentwide financial
statements for fiscal year 1997 because it could not verify the
reliability of the amounts for property, plant, and equipment
reported at $26.5 billion, inventory reported at $2.0 billion,
postemployment benefits (primarily the Coast Guard's pension
liability) reported at $14.0 billion, and excise tax revenue reported
at $28.4 billion. Because of actions by DOT and others, the latter
two audit issues have a reasonable chance of having been corrected
for fiscal year 1998. However, serious financial management
weaknesses at FAA contribute to the remaining issues.
In its report, the Office of Inspector General also cited problems
with the Department's accounting systems, which prevented the agency
from complying with the Federal Financial Management Improvement Act
of 1996.\4 The Inspector General concluded that for the agency to
comply with the act, it needs to (1) modify its accounting systems to
be the primary source of financial information to prepare the
consolidated financial statements and (2) complete assessments of
Year 2000 computer problems.
For the property, plant, and equipment account and inventory amounts
reported, the Inspector General concluded that FAA and the Coast
Guard could not reliably determine the quantities and the locations
of these assets or provide sufficient information to verify their
values. Specific deficiencies included (1) the lack of comprehensive
physical inventories, (2) inaccurate general ledger balances, (3)
inadequate subsidiary records, (4) the lack of supporting
documentation, (5) unreconciled discrepancies between balances
maintained in their accounting systems and the detailed subsidiary
records, and (6) the lack of a cost-accounting system.
We have reported that problems in accounting for property, plant, and
equipment affect DOT's ability to properly manage these assets and
may result in operating inefficiencies. For example, in FAA,
mission-critical equipment, such as radar and other air traffic
control equipment, may be difficult to locate when needed, which
could exacerbate an emergency situation. Also, theft could go
undetected, and funds could be spent unnecessarily to acquire
equipment that is already on hand.
We have also reported that DOT's lack of inventory accountability can
result in program officials' inability to make prudent business
decisions and to adequately safeguard assets. It may also impair
operational effectiveness. For example, because of inaccurate
inventory information, funding requests may not be based on actual
needs, unnecessary purchases may be made, and inventory may be
overstocked or hoarded because of concerns about availability. The
resulting excesses as well as spare parts for equipment no longer in
service would require storage, inventory control, and other
activities that consume operating resources. Inaccurate inventories
can also result in the shortage of or the inability to locate
essential parts necessary to repair mission-critical systems.
Furthermore, these underlying data deficiencies preclude DOT from
accurately determining the cost of its operations and may permit
undetected waste, fraud, and abuse related to these assets.
--------------------
\4 This act requires agencies to implement and maintain financial
management systems that comply substantially with Federal Financial
Management System Requirements, applicable federal accounting
standards, and the U.S. Standard General Ledger at the transaction
level.
SYSTEMS TO DETERMINE FULL
COST HAVE NOT BEEN
IMPLEMENTED
-------------------------------------------------------- Chapter 1:9.2
DOT lacks a cost-accounting system or an alternative means to
accumulate costs. This means that DOT's financial reports (1) may
not be capturing the full cost of specific projects and activities
and (2) may lack a reliable Statement of Net Cost, which includes
functional cost allocations. The lack of cost-accounting information
limits FAA's and others' ability to make effective decisions about
resource needs and to adequately control major projects, such as the
$42 billion air traffic control modernization program. For example,
we have reported that without good cost information, FAA cannot
reliably measure the actual cost of the modernization program against
established baselines and cannot improve future cost estimates.
Finally, the lack of reliable cost information limits DOT's ability
to meaningfully evaluate performance in terms of efficiency and
cost-effectiveness, as called for by the Government Performance and
Results Act of 1993.
DOT, especially FAA, has made substantial progress in developing its
cost-accounting system, but more still needs to be done. For
example, an August 1998 report by DOT's Inspector General identified
four systems design issues potentially involving billions of dollars
that FAA needs to address before its cost-accounting system can
accurately account for the full cost of operations. These issues
include establishing a method to identify and reflect (1) the cost of
accounting adjustments, (2) the cost for all development projects,
(3) the cost incurred by other agencies for air traffic services, and
(4) the correct labor cost charged to appropriate projects.
CORRECTIVE ACTIONS ARE UNDER
WAY, BUT PROGRESS IN SOME AREAS
IS SLOW
--------------------------------------------------------- Chapter 1:10
On May 26, 1998, the President requested DOT, among other agencies,
to submit to the Office of Management and Budget by July 31, 1998, a
plan for resolving the financial reporting deficiencies that were
identified in its financial statement audits. DOT submitted the
required plan, though not until September 30, 1998. This plan (1)
identified actions by DOT, especially FAA and the Coast Guard, to
correct weaknesses reported in the Inspector General's audits and (2)
established the goal of an unqualified audit opinion on DOT's fiscal
year 1999 financial statements. For example, the plan called for
completing physical counts of and developing appropriate support for
the valuation of property, plant, equipment, and inventory at FAA and
the Coast Guard. It also called for developing adequately documented
processes and reconciling detailed records to summary accounts.
DOT is taking actions outlined in its plan to correct financial
management deficiencies, but it faces significant challenges owing to
the numerous problems that need to be addressed. For example, FAA
and the Coast Guard have developed plans to improve cost information,
reconcile data, help ensure that the integrity of information systems
is maintained, and prepare reliable financial statements by September
30, 1999. However, progress has been slow in some areas, and much
remains to be done. For example, FAA's original plan called for full
implementation of its cost-accounting system by October 1, 1998; FAA
subsequently revised this date to March 31, 1999, which has been
described by the Inspector General as "very ambitious." If DOT
continues to fall behind in meeting its planned completion dates, it
is questionable whether it will achieve its goal of receiving an
unqualified audit opinion for fiscal year 1999.
The financial management weaknesses discussed above are particularly
troublesome at FAA because of their long-standing nature and the
agency's slow progress in resolving them. Timely resolution is
especially key, given that FAA is in the midst of a $42 billion
program to modernize its air traffic control systems. Until FAA's
serious financial management problems are resolved, we will continue
to designate financial management at the agency as high-risk.
KEY CONTACT
------------------------------------------------------- Chapter 1:10.1
Linda M. Calbom, Director
Resources, Community, and Economic
Development Division Accounting
and Financial Management Issues
Accounting and Information Management
Division
(202) 512-9508
[email protected]
RELATED GAO PRODUCTS
============================================================ Chapter 2
ACQUISITION MANAGEMENT
---------------------------------------------------------- Chapter 2:1
Air Traffic Control: Status of FAA's Modernization Program
(GAO/RCED-99-25, Dec. 3, 1998).
Coast Guard's Acquisition Management: Deepwater Project's
Justification and Affordability Need to Be Addressed More Thoroughly
(GAO/RCED-99-6, Oct. 26, 1998).
National Airspace System: FAA Has Implemented Some Free Flight
Initiatives, but Challenges Remain (GAO/RCED-98-246,
Sept. 28, 1998).
Air Traffic Control: Immature Software Acquisition Processes
Increase FAA System Acquisition Risks (GAO/AIMD-97-47, Mar. 21,
1997).
Air Traffic Control: Complete and Enforced Architecture Needed for
FAA Systems Modernization (GAO/AIMD-97-30, Feb. 3, 1997).
Aviation Acquisition: A Comprehensive Strategy Is Needed for
Cultural Change at FAA (GAO/RCED-96-159, Aug. 22, 1996).
YEAR 2000 COMPLIANCE
---------------------------------------------------------- Chapter 2:2
Responses to Questions on FAA's Computer Security and Year 2000
Program (GAO/AIMD-98-301R, Sept. 14, 1998).
FAA Systems: Serious Challenges Remain in Resolving Year 2000 and
Computer Security Problems (GAO/T-AIMD-98-251, Aug. 6, 1998).
Air Traffic Control: FAA Plans to Replace Its Host Computer System
Because Future Availability Cannot Be Assured (GAO/AIMD-98-138R, May
1, 1998).
Year 2000 Computing Crisis: FAA Must Act Quickly to Prevent Systems
Failures (GAO/T-AIMD-98-63, Feb. 4, 1998).
FAA Computer Systems: Limited Progress on Year 2000 Issue Increases
Risk Dramatically (GAO/AIMD-98-45, Jan. 30, 1998).
AVIATION FINANCING
---------------------------------------------------------- Chapter 2:3
Airfield Pavement: Keeping Nation's Runways in Good Condition Could
Require Substantially Higher Spending (GAO/RCED-98-226, July 31,
1998).
Airport Financing: Funding Sources for Airport Development
(GAO/RCED-98-71, Mar. 12, 1998).
Transportation Financing: Challenges in Meeting Long-Term Funding
Needs for FAA, Amtrak, and the Nation's Highways (GAO/T-RCED-97-151,
May 7, 1997).
Airport Development Needs: Estimating Future Costs (GAO/RCED-97-99,
Apr. 7, 1997).
National Airspace System: Issues in Allocating Costs for Air Traffic
Services to DOD and Other Users (GAO/RCED-97-106, Apr. 25, 1997).
Air Traffic Control: Improved Cost Information Needed to Make
Billion Dollar Modernization Investment Decisions (GAO/AIMD-97-20,
Jan. 22, 1997).
AVIATION SAFETY AND SECURITY
---------------------------------------------------------- Chapter 2:4
Air Traffic Control: Weak Computer Security Practices Jeopardize
Flight Safety (GAO/AIMD-98-155, May 18, 1998).
Aviation Safety: FAA Has Not Fully Implemented Weather-Related
Recommendations (GAO/RCED-98-130, June 2, 1998).
Aviation Security: Progress Being Made, but Long-Term Attention Is
Needed (GAO/T-RCED-98-190, May 14, 1998).
Aviation Security: Implementation of Recommendations Is Under Way,
but Completion Will Take Several Years (GAO/RCED-98-102, Apr. 24,
1998).
Aviation Safety: Weaknesses in Inspection and Enforcement Limit FAA
in Identifying and Responding to Risks (GAO/RCED-98-6, Feb. 27,
1998).
Aviation Safety: Efforts to Implement Flight Operational Quality
Assurance Programs (GAO/RCED-98-10, Dec. 2, 1997).
Human Factors: FAA's Guidance and Oversight of Pilot Crew Resource
Management Training Can Be Improved (GAO/RCED-98-7, Nov. 24, 1997).
Aviation Safety: FAA Oversight of Repair Stations Needs Improvement
(GAO/RCED-98-21, Oct. 24, 1997).
AVIATION COMPETITION
---------------------------------------------------------- Chapter 2:5
Aviation Competition: Proposed Domestic Airline Alliances Raise
Serious Issues (GAO/T-RCED-98-215, June 4, 1998).
Domestic Aviation: Service Problems and Limited Competition Continue
in Some Markets (GAO/T-RCED-98-176, Apr. 23, 1998).
Aviation Competition: International Aviation Alliances and the
Influence of Airline Marketing Practices (GAO/T-RCED-98-131, Mar.
19, 1998).
Airline Deregulation: Barriers to Entry Continue to Limit
Competition in Several Key Domestic Markets (GAO/RCED-97-4, Oct. 18,
1996).
Airline Deregulation: Changes in Airfares, Service, and Safety at
Small, Medium-Sized, and Large Communities (GAO/RCED-96-79, Apr. 19,
1996).
SURFACE TRANSPORTATION
INFRASTRUCTURE
---------------------------------------------------------- Chapter 2:6
Mass Transit: Grants Management Oversight Improving, but Better
Follow-Up Needed on Grantees' Noncompliance (GAO/RCED-98-89, Apr. 3,
1998).
Surface Infrastructure: Costs, Financing, and Schedules for
Large-Dollar Transportation Projects (GAO/RCED-98-64, Feb. 12,
1998).
Transportation Infrastructure: Managing the Costs of Large-Dollar
Highway Projects (GAO/RCED-97-47, Feb. 28, 1997).
AMTRAK
---------------------------------------------------------- Chapter 2:7
Intercity Passenger Rail: Financial Performance of Amtrak's Routes
(GAO/RCED-98-151, May 14, 1998).
Intercity Passenger Rail: Outlook for Improving Amtrak's Financial
Health (GAO/T-RCED-98-134, Mar. 24, 1998).
Intercity Passenger Rail: Issues Associated With a Possible Amtrak
Liquidation (GAO/RCED-98-60, Mar. 2, 1998).
Intercity Passenger Rail: Financial and Operating Conditions
Threaten Amtrak's Long-Term Viability (GAO/RCED-95-71, Feb. 6,
1995).
FINANCIAL MANAGEMENT
---------------------------------------------------------- Chapter 2:8
Financial Management: Federal Aviation Administration Lacked
Accountability for Major Assets (GAO/AIMD-98-62, Feb. 18, 1998).
Air Traffic Control: Improved Cost Information Needed to Make
Billion Dollar Modernization Investment Decisions (GAO/AIMD-97-20,
Jan. 22, 1997).
OTHER GAO PRODUCTS
---------------------------------------------------------- Chapter 2:9
Results Act: Observations on the Department of Transportation's
Annual Performance Plan for Fiscal Year 1999 (GAO/RCED-98-180R, May
12, 1998).
DOT's Budget: Management and Performance Issues Facing the
Department in Fiscal Year 1999 (GAO/T-RCED/AIMD-98-76, Feb. 12,
1998).
Federal Management: Addressing Management Issues at the Department
of Transportation (GAO/T-RCED/AIMD-97-172, May 21, 1997).
PERFORMANCE AND ACCOUNTABILITY
SERIES
============================================================ Chapter 3
Major Management Challenges and Program Risks: A Governmentwide
Perspective (GAO/OCG-99-1)
Major Management Challenges and Program Risks: Department of
Agriculture (GAO/OCG-99-2)
Major Management Challenges and Program Risks: Department of
Commerce (GAO/OCG-99-3)
Major Management Challenges and Program Risks: Department of Defense
(GAO/OCG-99-4)
Major Management Challenges and Program Risks: Department of
Education (GAO/OCG-99-5)
Major Management Challenges and Program Risks: Department of Energy
(GAO/OCG-99-6)
Major Management Challenges and Program Risks: Department of Health
and Human Services (GAO/OCG-99-7)
Major Management Challenges and Program Risks: Department of Housing
and Urban Development (GAO/OCG-99-8)
Major Management Challenges and Program Risks: Department of the
Interior (GAO/OCG-99-9)
Major Management Challenges and Program Risks: Department of Justice
(GAO/OCG-99-10)
Major Management Challenges and Program Risks: Department of Labor
(GAO/OCG-99-11)
Major Management Challenges and Program Risks: Department of State
(GAO/OCG-99-12)
Major Management Challenges and Program Risks: Department of
Transportation (GAO/OCG-99-13)
Major Management Challenges and Program Risks: Department of the
Treasury (GAO/OCG-99-14)
Major Management Challenges and Program Risks: Department of
Veterans Affairs (GAO/OCG-99-15)
Major Management Challenges and Program Risks: Agency for
International Development (GAO/OCG-99-16)
Major Management Challenges and Program Risks: Environmental
Protection Agency (GAO/OCG-99-17)
Major Management Challenges and Program Risks: National Aeronautics
and Space Administration (GAO/OCG-99-18)
Major Management Challenges and Program Risks: Nuclear Regulatory
Commission (GAO/OCG-99-19)
Major Management Challenges and Program Risks: Social Security
Administration (GAO/OCG-99-20)
Major Management Challenges and Program Risks: U.S. Postal Service
(GAO/OCG-99-21)
High-Risk Series: An Update (GAO/HR-99-1)
The entire series of 21 performance and accountability reports and
the high-risk series update can be ordered by using the order number
GAO/OCG-99-22SET.
*** End of document. ***