Major Management Challenges and Program Risks: Department of Agriculture
(Letter Report, 01/01/99, GAO/OCG-99-2).

As part of its Performance and Accountability Series, GAO provided
information on the major management challenges and program risks facing
the Department of Agriculture (USDA).

GAO noted that: (1) USDA's field structure for managing farm programs is
obsolete and inefficient; (2) the increasing incidence of foodborne
illness has heightened concerns about the federal government's
effectiveness in ensuring the safety of food; (3) this concern has
resulted in the use of more scientific approaches to meat and poultry
inspections; (4) however, these changes do not address the fundamental
problem of having the responsibilities for food safety scattered among
12 different federal agencies, which results in inconsistent oversight,
poor coordination, and the inefficient allocation of resources; (5)
inefficiency and waste throughout the Forest Service's operations and
organization have cost taxpayers hundreds of millions of dollars; (6)
while the Forest Service has made progress in recent years, it is still
far from achieving financial accountability; (7) USDA continues to carry
a high level of delinquent farm loan debt and to write off large amounts
of unpaid loans held by problem borrowers; (8) millions of dollars in
overpayments in the Food Stamp Program occur because eligible persons
are paid too much or because ineligible individuals improperly
participated in the Food Stamp Program; (9) USDA has a long-standing
history of deficiencies in its accounting and financial management
systems; (10) USDA has an action plan for resolving its accounting and
financial systems' deficiencies that calls for full implementation by
fiscal year 2000; (11) USDA is not effectively managing its
telecommunications systems and services; (12) to respond to these
problems, USDA has identified improvements it states could reduce its
annual $200-plus million telecommunications investment by as much as $70
million each year; (13) several management weaknesses raise concerns
regarding the extent to which USDA's service center information
technology (IT) modernization effort, which could ultimately cost more
than $3 billion, will achieve an adequate return on its investment or
significantly improve customer service; (14) USDA needs to develop a
concept of operations and new mission-critical business processes for
providing one-stop service to better ensure the success of its IT
modernization efforts; (15) while USDA has begun to address the year
2000 problem, it still faces significant challenges renovating and
replacing all its mission-critical systems in time and taking the
necessary steps to ensure that vital public services are not disrupted;
and (16) USDA's 1998 strategic plan did not address certain management
problems.

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

 REPORTNUM:  OCG-99-2
     TITLE:  Major Management Challenges and Program Risks: Department 
             of Agriculture
      DATE:  01/01/99
   SUBJECT:  Management information systems
             Agricultural programs
             Risk management
             Food inspection
             Financial management
             Farm credit
             Information resources management
             Accountability
             Strategic planning
             Customer service
IDENTIFIER:  Food Stamp Program
             USDA Telecommunications Action Plan
             Y2K
             National Performance Review
             USDA Service Center Implementation Initiative
             Performance and Accountability Series 1999
             FTS
             Federal Telecommunications System 2000
             
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Cover
================================================================ COVER


Performance and Accountability Series

January 1999

MAJOR MANAGEMENT CHALLENGES AND
PROGRAM RISKS - DEPARTMENT OF
AGRICULTURE

GAO/OCG-99-2

USDA Challenges


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

  FDA - Food and Drug Administration
  FFMIA - Federal Financial Management Improvement Act of 1996
  HACCP - Hazard Analysis and Critical Control Point
  IT - Information Technology
  USDA - U.S.  Department of Agriculture

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 U.S.  Department of
Agriculture (USDA) in carrying out its mission.  It also addresses
corrective actions that USDA has taken or initiated on these
challenges and identifies further actions that are needed. 

The management challenges USDA faces are as diverse as its missions,
which include ensuring the safety of the nation's food supply,
providing food assistance for the needy, supporting the agriculture
sector, and managing the national forests.  Given the importance of
these missions, it is critical that USDA manages the programs
designed to fulfill these missions as efficiently and effectively as
possible.  However, over the last several years, we have highlighted
problems in each of these areas that reduce program effectiveness. 
For example, we have identified inefficient and wasteful practices in
the Forest Service that have cost taxpayers hundreds of millions of
dollars.  In addition, we have found significant management problems
in USDA's use of information technology.  Furthermore, we have
designated financial management at the Forest Service and farm loan
programs as high-risk areas. 

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 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
Agriculture, and the heads of other major departments and agencies. 

David M.  Walker
Comptroller General of
the United States


OVERVIEW
============================================================ Chapter 0

Since its creation in 1862, the U.S.  Department of Agriculture
(USDA) has grown substantially and is now one of the nation's largest
federal agencies, employing over 100,000 people and managing a budget
of almost $60 billion.  Its 29 agencies and offices are responsible
for operating more than 200 programs that, among other things,
support the productivity and profitability of farming and ranching,
protect the natural environment, ensure food safety, improve the
well-being of rural America, promote domestic marketing and the
export of food and farm products, conduct biotechnology and other
agriculture research, and provide food assistance to those Americans
who need it. 

Over the years, we, USDA's Inspector General, and others have
documented the performance and management problems that have
inhibited the effectiveness or efficiency of USDA's operations.  In
some cases, the Congress and/or USDA has taken actions to address
these problems.  However, a number of important challenges remain. 


   THE CHALLENGES
---------------------------------------------------------- Chapter 0:1


      USDA'S FIELD STRUCTURE IS
      INEFFICIENT
-------------------------------------------------------- Chapter 0:1.1

USDA's field structure for managing its farm programs is obsolete and
inefficient.  While USDA has made progress in closing about 1,000
county office locations, its field structure still includes about
2,700 county office locations that serve a decreasing number of
farmers.  To improve the efficiency of its farm service operations,
USDA needs to consider using alternative methods for delivering
services to farmers and reconsider the level of personalized service
it provides to farmers. 


      FUNDAMENTAL CHANGES ARE
      NEEDED TO IMPROVE FOOD
      SAFETY
-------------------------------------------------------- Chapter 0:1.2

The increasing incidence of foodborne illness has heightened concerns
about the federal government's effectiveness in ensuring the safety
of food.  This concern has resulted in, among other things, the use
of more scientific approaches to meat and poultry inspections. 
However, while these changes are important to better ensuring the
safety of our food, they do not address the fundamental problem of
having the responsibilities for food safety scattered among 12
different federal agencies, which results in inconsistent oversight,
poor coordination, and the inefficient allocation of resources.  The
current highly fragmented federal system for food safety needs to be
replaced with a uniform, risk-based inspection system under a single
food agency. 


      INEFFICIENCY AND WASTE
      WITHIN THE FOREST SERVICE
      CONTINUE
-------------------------------------------------------- Chapter 0:1.3

Inefficiency and waste throughout USDA's Forest Service's operations
and organization have cost taxpayers hundreds of millions of dollars. 
In particular, the Forest Service has not obtained fair market value
for its goods or recovered its costs for services, cannot accurately
account for a significant amount of its assets and expenditures, has
generally unreliable financial statements, and has weak contracting
practices.  While the Forest Service has made progress in recent
years, it is still far from achieving financial accountability and
possibly a decade or more away from being fully accountable for its
performance.  Since the financial problems at the Forest Service are
so pervasive and long-standing, we are now designating the Forest
Service's financial management a high-risk area.  To improve its
operational efficiency and effectiveness, the Forest Service must be
accountable for its financial operations and performance. 


      USDA'S FARM LOAN PROGRAMS
      REMAIN VULNERABLE TO LOSS
-------------------------------------------------------- Chapter 0:1.4

In 1990, we placed USDA's farm loan programs on our high-risk list. 
In 1998, we reported that the size of USDA's direct loan portfolio,
$9.7 billion at the end of fiscal year 1997, as well as the
percentage of the portfolio held by delinquent borrowers had
decreased since 1995.  Nevertheless, USDA continues to carry a high
level of delinquent farm loan debt and to write off large amounts of
unpaid loans held by problem borrowers.  In addition, farm loan
delinquencies may increase because of the droughts and low prices for
major crops and livestock in 1998.  USDA and the Congress need to
continue to monitor the effects of recent lending and servicing
reforms intended to improve the financial integrity of the farm loan
programs. 


      REDUCING OVERPAYMENTS IN THE
      FOOD STAMP PROGRAM
-------------------------------------------------------- Chapter 0:1.5

Millions of dollars in overpayments in the Food Stamp Program occur
because eligible persons are paid too much or because ineligible
individuals improperly participated in the Food Stamp Program.  For
example, thousands of prisoners and deceased individuals have been
included as members of households receiving food stamps.  Computer
matching can provide a cost-effective mechanism to accurately and
independently identify households that include ineligible food stamp
participants.  Some states have taken actions to reduce food stamp
overpayments by using computer matching to identify ineligible
participants.  USDA can enhance the states' effectiveness in
identifying other ineligible participants and reducing overpayments
by taking a lead role in promoting the sharing of information among
federal and state agencies. 


      USDA LACKS FINANCIAL
      ACCOUNTABILITY OVER BILLIONS
      OF DOLLARS IN ASSETS
-------------------------------------------------------- Chapter 0:1.6

USDA has a long-standing history of deficiencies in its accounting
and financial management systems.  Since 1991, because of these
deficiencies, USDA's Inspector General has issued a series of
unfavorable financial audit reports on USDA and several of its
component agencies' financial statements.  In addition, USDA's
ability to comply with budgetary and financial statement reporting
requirements is severely hampered by its lack of adequate financial
systems.  USDA currently has an action plan for resolving its
accounting and financial systems' deficiencies that calls for full
implementation by fiscal year 2000.  Given the long-standing nature
of USDA's financial management deficiencies, complete resolution by
fiscal year 2000 will be a significant challenge.  In addition, as
previously mentioned, because the financial problems at the Forest
Service are so pervasive and long-standing, we are now designating
the Forest Service's financial management a high-risk area. 


      USDA CAN SAVE MILLIONS BY
      BETTER MANAGING ITS
      TELECOMMUNICA-
      TIONS INVESTMENTS
-------------------------------------------------------- Chapter 0:1.7

USDA is not effectively managing its telecommunications systems and
services.  Among other things, USDA has not consolidated and
optimized telecommunications where opportunities exist to do so or
established sound management practices to ensure that
telecommunications resources are effectively managed and payments for
unused, unnecessary, or uneconomical services are terminated.  To
respond to these problems, USDA has identified improvements it states
could reduce its annual $200-plus million telecommunications
investment by as much as $70 million each year.  As a first step,
USDA is developing a Telecommunications Action Plan for correcting
its telecommunications management deficiencies.  However, once this
plan is developed, USDA will need to effectively implement it to
correct deficiencies and achieve cost savings. 


      SIGNIFICANT WEAKNESSES IN
      USDA'S MULTIBILLION-DOLLAR
      MODERNIZATION OF SERVICE
      CENTER INFORMATION
      TECHNOLOGY PLACE EFFORT AT
      RISK
-------------------------------------------------------- Chapter 0:1.8

Since 1993, USDA has been attempting to undertake the most costly and
challenging information technology (IT) modernization in its history. 
Several management weaknesses raise concerns regarding the extent to
which USDA's service center IT modernization effort, which could
ultimately cost more than $3 billion, will achieve an adequate return
on its investment or significantly improve customer service.  These
weaknesses include, for example, (1) acquiring new IT without first
determining how it will operate to provide required service, (2) not
managing the IT projects as investments, and (3) not developing a
comprehensive plan and management structure.  Among other things,
USDA needs to develop a concept of operations and new
mission-critical business processes for providing one-stop service to
better ensure the success of its IT modernization efforts. 


      USDA FACES SERIOUS YEAR 2000
      COMPUTING CHALLENGES
-------------------------------------------------------- Chapter 0:1.9

In May 1998, we testified that USDA will have a great deal of
difficulty in correcting, testing, and implementing its
mission-critical automated information systems to work beyond
1999--that is to become Year 2000 compliant--in time.  While USDA has
begun to address the Year 2000 problem, it still faces significant
challenges renovating and replacing all its mission-critical systems
in time and taking the necessary steps to ensure that vital public
services are not disrupted. 


------------------------------------------------------- Chapter 0:1.10

We have not comprehensively evaluated how effectively the strategic
and annual performance plans required by the Government Performance
and Results Act address USDA's management problems.  However, we have
reported that USDA's 1997 strategic plan did not address certain
management problems that we had previously identified, including
those related to IT programs.  Regarding USDA's performance plans, we
reported on the key areas in which USDA's performance plans could be
improved to better meet the purposes of the Results Act. 
Specifically, we reported that USDA's performance plans should (1)
discuss mitigation strategies for each significant external factor
that may interfere with the achievement of performance goals; (2)
describe the procedures that will be used to ensure that the data
needed to measure progress in meeting performance goals are complete,
accurate, and credible; and (3) identify what, if any, limitations
exist with respect to the data used for measuring performance. 
Furthermore, we reported that neither the strategic or performance
plan adequately explained how USDA is coordinating crosscutting
issues both inside and outside the Department. 


   PROGRESS AND NEXT STEPS
---------------------------------------------------------- Chapter 0:2

As discussed earlier, USDA is addressing many of its management
challenges.  For example, to improve the efficiency of its farm
service operations, it has closed about 1,000 county office locations
nationwide.  Furthermore, USDA has implemented more scientific
approaches to meat and poultry inspections to better ensure the
safety of our nation's food.  Despite these actions, USDA still faces
formidable challenges to ensure the efficiency and effectiveness of
its operations.  This will not be easy, in part because the
challenges are as diverse as USDA's missions.  As might be expected,
there is no single action USDA can take that would effectively
address all of these problems.  As a result, this report identifies a
variety of actions USDA can take to address each individual problem. 
In addition, the Results Act could serve as a powerful tool to guide
USDA in the many decisions it will have to make as it works toward
mitigating the problems associated with these challenges. 


MAJOR PERFORMANCE AND MANAGEMENT
ISSUES
============================================================ Chapter 1

Over the years, we, USDA's Inspector General, the National
Performance Review, and others have documented problems with USDA's
performance and management and recommended reforms.  This report
summarizes our recent findings on the effectiveness of USDA in
revamping its obsolete field structure; improving the safety of our
nation's food supply; improving the effectiveness of, and reducing
waste in, the Forest Service; reducing farm loan defaults; reducing
overpayments in the Food Stamp Program; accounting for billions of
dollars in assets and expenditures; managing its telecommunications
investments; addressing weaknesses in its multibillion-dollar service
center information technology modernization effort; and meeting the
Year 2000 challenge.  We have also indicated, where applicable,
actions USDA has taken to address these management and performance
problems. 


   USDA'S FIELD STRUCTURE IS
   INEFFICIENT
---------------------------------------------------------- Chapter 1:1

The role of USDA's county office structure and the relationship of
that structure to farmers has not changed significantly since USDA
began delivering programs at the local level in the 1930s.  Even
though improvements have been made in the transportation and
communications infrastructure, and the number of farmers living in
rural America has declined, USDA continues to provide the same kind
of personalized service in the county office that it did 60 years
ago.  However, this service now comes at a cost of almost $1 billion
annually.  While many farmers prefer this kind of service, it is
questionable whether the federal government should support this
service over the long term. 

The Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (P.L.  103-354, Oct.  13, 1994) directed
the Secretary of Agriculture to streamline departmental operations by
consolidating county offices.  USDA has made progress in implementing
the act.  Between December 1994 and March 1998, it reduced the number
of county office locations by more than 1,000--from 3,760 to about
2,700.  Our reports have recognized this progress but have noted
several concerns associated with the consolidation efforts: 

  -- USDA needs to consider alternative, more efficient means of
     delivering services to farmers.  Currently, most farmers deal
     directly with USDA personnel in local county offices.  USDA
     needs to study the costs and benefits of using alternative
     delivery methods, such as mail, telephones, and computers, to
     deliver these services.  Using alternative delivery methods
     should allow USDA to operate with fewer staff and offices, which
     could reduce personnel expenses by millions of dollars. 
     Conversely, we realize that making significant changes to USDA's
     field office structure to reduce government expenses and improve
     program efficiency could increase the administrative
     requirements for, and thereby the costs to, farmers who
     participate in farm programs. 

  -- USDA needs to better evaluate the costs and impact of its
     consolidation actions.  More specifically, although USDA has
     made a number of organizational changes since 1994 to reduce its
     staff and streamline its operations, it does not plan to
     determine the extent to which these efforts have achieved the
     objectives of the 1994 act, other than determining the savings
     associated with staff reductions.  As a result, USDA will not be
     able to assess the extent to which its efforts have been
     successful in achieving all the objectives mandated by the 1994
     act, including the impact on the quality of services it
     provides. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:1.1

Lawrence J.  Dyckman, Director
Food and Agriculture Issues
Resources, Community, and Economic
 Development Division
(202) 512-5138
[email protected]


   FUNDAMENTAL CHANGES ARE NEEDED
   TO IMPROVE FOOD SAFETY
---------------------------------------------------------- Chapter 1:2

Foodborne illnesses in the United States are widespread and costly. 
The magnitude of the problem is uncertain, however, because these
illnesses are underreported and health officials cannot determine
their source.  Estimates of foodborne illnesses range widely, from
6.5 million to 81 million cases each year and result in as few as 500
to as many as 9,100 related deaths annually.  According to USDA's
Economic Research Service, the costs for medical treatment and
productivity losses associated with these illnesses and deaths range
from $6.6 billion to $37.1 billion. 

The increasing incidence of foodborne illness has heightened concerns
about the federal government's effectiveness in ensuring the safety
of the nation's food supply.  This concern in part helped spawn a
major new approach to food safety regulation that is currently being
phased in.  This approach, in line with our prior recommendations,
requires meat and poultry plants to use a scientific system called
Hazard Analysis and Critical Control Point (HACCP) to ensure the
safety of their products.  The new regulations also require that meat
and poultry slaughter plants conduct microbial tests for E.coli,
which is a general indicator of sanitary conditions. 

Requiring HACCP and microbial testing is without question an
important step toward moving to a more scientific approach to
ensuring a safer food supply.  However, these requirements do not
address several other fundamental problems with our current food
safety system.  Most importantly, the current system is highly
fragmented.  As many as 12 different federal agencies, administering
over 35 different laws, oversee food safety.  As a result, the
current food safety system suffers from inconsistent oversight, poor
coordination, and inefficient allocation of resources.  For example: 

  -- Subtle differences in food products often dictate which agency
     regulates a product and what actions it takes.  A case in point: 
     USDA is responsible for inspecting plants that produce
     open-faced meat sandwiches and pizzas with meat toppings.  It
     conducts these inspections at least once each operating shift. 
     On the other hand, the Department of Health and Human Services'
     Food and Drug Administration (FDA) is responsible for inspecting
     plants that produce traditional meat sandwiches and nonmeat
     pizzas.  It conducts inspections of plants under its
     jurisdiction, on average, once every 10 years. 

  -- More than one-fourth of the over $1 billion federal budget for
     food safety--about $271 million--could be used more efficiently
     if the current carcass-by-carcass slaughter inspection
     requirement is eliminated once HACCP-based inspection systems
     are in place.  These statutory inspections do not optimize
     federal resources because they do not detect the most serious
     health threat associated with meat and poultry--microbial
     contamination.  The funds currently used for these inspections
     could be better spent on other food safety activities, such as
     helping smaller slaughter plants implement HACCP or conducting
     better surveillance of imported foods. 

In summary, the highly fragmented federal food safety structure needs
to be replaced with a uniform, risk-based inspection system under a
single food safety agency.  In the interim, the implementation of the
Results Act's planning requirements may better facilitate the use of
food safety resources across the federal government. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:2.1

Lawrence J.  Dyckman, Director
Food and Agriculture Issues
Resources, Community, and Economic
 Development Division
(202) 512-5138
[email protected]


   INEFFICIENCY AND WASTE WITHIN
   THE FOREST SERVICE CONTINUE
---------------------------------------------------------- Chapter 1:3

Over the last decade, we have reported that inefficiency and waste
throughout the Forest Service's operations and organization have cost
taxpayers hundreds of millions of dollars.  For example, the Forest
Service has often not obtained fair market value for goods or
recovered costs for services as permitted under federal law and has
not always responded to reduce or contain costs pursuant to
congressional request.  The agency's financial statements are
generally unreliable, and significant assets and expenditures cannot
be accurately accounted for.  Because the Forest Service has
struggled for years to improve the reliability of its financial
statements without success, we are now designating the Forest
Service's financial management a high-risk area.  Furthermore, the
Forest Service's weak contracting practices have exposed appropriated
dollars to an increased risk of fraud, waste, and abuse.  These and
other findings have led us, USDA's Inspector General, and Forest
Service task forces to make numerous recommendations to improve
performance.  We testified on March 26, 1998, that the Forest Service
had not acted on some of these recommendations, had studied and
restudied others without implementing them, and has left the
implementation of others to the discretion of its independent and
autonomous regional offices and forests, with mixed results. 

To improve its operational efficiency and effectiveness, the Forest
Service must be accountable for its financial activities and
performance.  While the agency has made progress in recent years, it
is still years away from achieving financial accountability and
possibly a decade or more away from being accountable for its
performance.  Specifically, the Forest Service has identified the
actions required to correct known accounting and financial reporting
deficiencies and has established a schedule to attain financial
accountability within the next few years.  In addition, the agency
has taken an important first step toward becoming accountable for its
performance by making clear that its overriding mission and funding
priority, consistent with its existing legislative framework, has
shifted from producing goods and services to maintaining and
restoring the health of the lands entrusted to its care.  However, it
has not identified the actions required to correct decades-old
problems with its data and reporting, addressed new challenges
resulting from its changed priorities, or established a schedule to
achieve accountability for its performance by a certain date.  Strong
leadership within the agency and sustained oversight by the Congress
will be needed to ensure that the actions required to hold the Forest
Service accountable for its performance are identified and that it
adheres to schedules to achieve both performance and financial
accountability. 


      KEY CONTACTS
-------------------------------------------------------- Chapter 1:3.1

Victor S.  Rezendes, Director
Energy, Resources, and Science Issues
Resources, Community, and Economic
 Development Division
(202) 512-3841
[email protected]

Linda M.  Calbom, Director
Resources, Community, and Economic
 Development Accounting and Financial
 Management Issues
Accounting and Information Management
 Division
(202) 512-8341
[email protected]


   USDA'S FARM LOAN PROGRAMS
   REMAIN VULNERABLE TO LOSS
---------------------------------------------------------- Chapter 1:4

USDA's 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.  In operating the
farm loan programs, USDA faces the conflicting tasks of providing
temporary credit to high-risk borrowers so they can stay in farming
until they are able to secure commercial credit and of ensuring that
the taxpayers' investment is protected.  The unpaid principal on
USDA's active direct farm loan portfolio totaled about $9.7 billion
at the end of fiscal year 1997. 

In 1990, we placed USDA's farm loan programs on our high-risk list
because the programs (1) had an exceptionally high rate of defaults
and (2) had become a continuous source of subsidized credit for
nearly half of the borrowers under these programs.  In the 1996 Farm
Bill, the Congress made fundamental changes to the programs, such as
prohibiting delinquent borrowers from obtaining direct operating
loans and limiting the number of times delinquent borrowers can
receive debt forgiveness.  In our 1997 high-risk series of reports,
we noted that these changes, if implemented properly, would
significantly reduce the financial risk associated with the farm loan
programs.  In 1998, we reported that the value of farm loans held by
delinquent borrowers decreased from $4.6 billion, or 40.7 percent of
USDA's total outstanding direct farm loan principal in 1995, to $2.7
billion, or 28.2 percent, in 1997. 

Despite the indications of improvement in the farm loan portfolio's
financial condition, the farm loan programs remain high risk for
several reasons.  First, USDA continues to carry a high level of
delinquent debt and to write off large amounts of unpaid loans held
by problem borrowers.  Moreover, these delinquencies may increase
because of the droughts and low prices for major crops and livestock
in 1998.  Second, the Omnibus Consolidated and Emergency Supplemental
Appropriations Act, 1999 (P.L.  105-277, Oct.  21, 1998) eased some
of the lending reforms initiated under the 1996 Farm Bill.  For
example, it expanded exceptions to the Farm Bill's general
prohibition against providing additional loans to borrowers who had
prior loan losses.  Finally, both we and USDA's Inspector General
have reported on continuing management problems with the farm loan
programs.  For example, in May 1998, we reported that USDA still has
problems in complying with some of its own loan servicing standards. 
Similarly, in December 1998, USDA's Inspector General identified
USDA's farm loan programs as one of its key problem areas and plans
to expand its reviews of USDA's loan-making and loan-servicing
actions. 

USDA and the Congress need to continue to monitor the effects of
recent lending and servicing reforms intended to improve the
financial integrity of the farm loan programs. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:4.1

Lawrence J.  Dyckman, Director
Food and Agriculture Issues
Resources, Community, and Economic
 Development Division
(202) 512-5138
[email protected]


   REDUCING OVERPAYMENTS IN THE
   FOOD STAMP PROGRAM
---------------------------------------------------------- Chapter 1:5

The Food Stamp Program is one of the largest elements of the nation's
social safety net and is the largest single program administered by
USDA.  In fiscal year 1997, over $19 billion in food stamps was
provided to about 23 million recipients.  Fraud and abuse in the
program generally occurs because of overpayments to food stamp
recipients or because of trafficking--exchanging food stamp benefits
for cash or other non-food items.\1

Overpayments occur when ineligible persons are provided food stamps,
as well as when eligible persons are provided more than they are
entitled to receive.  In 1997, the states overpaid recipients an
estimated $1.4 billion.  That same year, the states underpaid
recipients by about $509 million.  Millions of dollars in
overpayments have occurred because ineligible individuals improperly
participated in the Food Stamp Program.  For example, thousands of
prisoners and deceased individuals have been included as members of
households receiving food stamps.  Computer matching can provide a
cost-effective mechanism to accurately and independently identify
households that include ineligible food stamp participants. 

Some states already conduct data-matching programs, such as matches
with the rolls of other states to find participants receiving
duplicate benefits.  The Congress has passed and the President has
signed legislation to require the states to ensure that food stamps
are not issued to prisoners and deceased individuals.  USDA can
enhance the states' effectiveness in identifying other ineligible
participants and reducing overpayments by taking a leading role in
promoting the use of and the sharing of information among federal and
state agencies. 


--------------------
\1 With regard to trafficking, USDA estimates that in 1993 (the
latest year of available data) about $815 million in food stamps,
approximately 4 percent of the food stamps issued, were traded for
cash at retail stores.  No one knows the extent of trafficking
between individuals before the food stamps are redeemed at authorized
retailers. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:5.1

Lawrence J.  Dyckman, Director
Food and Agriculture Issues
Resources, Community, and Economic
 Development Division
(202) 512-5138
[email protected]


   USDA LACKS FINANCIAL
   ACCOUNTABILITY OVER BILLIONS OF
   DOLLARS IN ASSETS
---------------------------------------------------------- Chapter 1:6

USDA has a long-standing history of deficiencies in its accounting
and financial management systems.  Since 1991, because of these
deficiencies, USDA's Inspector General has issued a series of
unfavorable financial audit reports on USDA and on several of its
component agencies' financial statements.  For example, the Office of
the Inspector General qualified its opinion on the fiscal year 1997
financial statements for the Rural Development mission area because
it was unable to reliably estimate the subsidy cost of the mission
area's $53.7 billion direct loan programs, as is required for
budgetary and financial reporting.  In addition, the Inspector
General was unable to issue an opinion on the Forest Service's fiscal
year 1997 financial statements in part because of the absence of an
integrated general ledger and supporting subsidiary records and
because of significant weaknesses in the financial systems. 

The Inspector General was also unable to issue an opinion on USDA's
fiscal year 1997 consolidated statements, primarily because of the
problems described earlier and numerous material internal control
weaknesses reported in the Inspector General's fiscal year 1997
internal control review of USDA's National Finance Center.  For
example, the Inspector General was unable to determine if the USDA
systems maintained by the National Finance Center had adequate
security in place to prevent misuse or unauthorized access to, or
modification of, data.  Furthermore, the Inspector General noted
instances in which access had been granted to individuals who should
have not had access and numerous instances in which modifications
were made to software programs without proper authorization and
testing.  In its report on USDA's fiscal year 1997 consolidated
statements, the Inspector General also cited problems with USDA's
internal controls and accounting systems, which prevented USDA from
complying with the Federal Financial Management Improvement Act
(FFMIA) of 1996.\2 The Inspector General recommended that for USDA to
comply with the act, it needs to (1) report its noncompliance with
FFMIA to the Office of Management and Budget and (2) prepare a
remediation plan to bring its financial management systems into
substantial compliance within a 3-year period. 

USDA's ability to meet budgetary and financial statement reporting
requirements is severely hampered by its lack of adequate financial
management systems.  USDA operates 70 of these financial management
systems, which include 142 applications, and a number of mission area
financial management subsystems.  The data in some of these systems
are neither timely nor readily accessible.  Many systems were
developed to address specific component agencies' needs, with little
central coordination or oversight by USDA.  Standardization and data
interchange were frequently not addressed when the systems were
built, and, as a result, information is often incompatible with
related information drawn from other systems.  Generating
consolidated reports and responding to queries from inside and
outside USDA in this environment is often a complex and
labor-intensive task. 

USDA has developed a plan of action for resolving its accounting and
financial management systems' deficiencies.  The plan includes steps
to correct deficiencies, scheduled dates of completion for each step,
names of senior agency officials who are responsible for resolving
each deficiency, and procedures for measuring the agency's progress. 
Procedures for measuring progress include having USDA's component
agencies submit progress reports to USDA's Chief Financial Officer
and holding progress reviews with appropriate officials within the
Office of Management and Budget.  The plan calls for full
implementation by fiscal year 2000.  However, because of the
magnitude and long-standing history of the problems, complete
resolution of USDA's financial management deficiencies by fiscal year
2000 will be a significant challenge. 

As discussed above and in the section of this report on inefficiency
and waste within the Forest Service, the financial management
problems at that agency are particularly serious, given their
pervasive and long-standing nature.  Because of this, we are now
designating the Forest Service's financial management a high-risk
area. 


--------------------
\2 FFMIA 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. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:6.1

Linda M.  Calbom, Director
Resources, Community, and Economic
 Development Accounting and Financial
 Management Issues
Accounting and Information Management
 Division
(202) 512-8341
[email protected]


   USDA CAN SAVE MILLIONS BY
   BETTER MANAGING ITS
   TELECOMMUNI-
   CATIONS INVESTMENTS
---------------------------------------------------------- Chapter 1:7

USDA spends more than $200 million each year for its
telecommunications systems and services, such as the voice and data
communications provided by the federal government's Federal
Telecommunications System 2000 programs and hundreds of commercial
carrier networks.  USDA relies on these systems to effectively
administer federal programs and serve millions of constituents.  Yet,
as we have reported, USDA has not cost-effectively managed and
planned these substantial investments.  Consequently, USDA has wasted
millions of dollars each year paying for unused, unnecessary, or
uneconomical services. 

In response to our reports and recommendations, USDA has taken
positive steps to begin correcting its telecommunications management
weaknesses--improvements that USDA says could reduce its $200
million-plus reported annual investment in telecommunications by as
much as $70 million each year.  However, USDA has not achieved
significant cost savings or management improvements because many of
its corrective actions are incomplete or inadequate.  For example,
USDA has not (1) established the sound management practices necessary
for ensuring that telecommunications resources are managed cost
effectively and that payments for unused, unnecessary, or
uneconomical services are stopped; (2) consolidated and optimized
telecommunications to achieve savings where opportunities exist to do
so; (3) adequately planned integrated networks in support of
information-sharing needs; and (4) determined the extent to which it
is at risk for telephone abuse and fraud and acted to mitigate those
risks, nationwide.  Furthermore, it is unclear how and when these
needed corrective actions will be implemented because USDA has not
established time frames, milestones, and resources for making
improvements. 

In its October 22, 1998, statement of actions on our most recent
report, USDA reiterated its commitment to implementing our
recommendations and strengthening the leadership and management of
its telecommunications program.  As a first step, USDA is developing
a comprehensive Telecommunications Action Plan for correcting its
telecommunications management deficiencies.  In addition, after
consultation with other senior USDA officials, the Chief Information
Officer designated the Deputy Chief Information Officer as the
senior-level official responsible for providing leadership over this
effort, which includes day-to-day responsibility and the requisite
authority necessary for overseeing the implementation of the
corrective plan of action.  While these are positive steps, USDA
still needs to effectively implement its action plan and take the
necessary steps to correct its telecommunications weaknesses--or its
estimated $70 million in annual savings will not be achieved. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:7.1

Joel C.  Willemssen, Director
Civil Agencies Information Systems
Accounting and Information Management
 Division
(202) 512-6408
[email protected]


   SIGNIFICANT WEAKNESSES IN
   USDA'S MULTIBILLION-DOLLAR
   MODERNIZATION OF SERVICE CENTER
   INFORMATION TECHNOLOGY PLACE
   EFFORT AT RISK
---------------------------------------------------------- Chapter 1:8

Since 1993, USDA has been attempting to modernize IT\3 for its
service centers--the biggest, most costly, and most challenging
modernization in its history.  USDA experienced a failure with its
initial $2.6 billion modernization program--called Info Share--which
was disbanded in 1995.  Then, in 1995, USDA initiated another
modernization effort--called the Service Center Implementation
initiative--for the purpose of providing "one-stop" service to
customers of the farm service, natural resources, and rural
development agencies.  Plans under this initiative include
modernizing business processes and IT for these agencies' 3,100
locations at estimated life-cycle costs that could ultimately exceed
$3 billion. 

We found that USDA's current multibillion-
dollar undertaking has several weaknesses that place the entire
effort at risk of not achieving an adequate return on investment or
significantly improving customer service.  Such weaknesses include
(1) acquiring new IT without first determining how it will operate to
provide "one-stop" service, (2) not managing the IT projects as
investments, and (3) not developing a comprehensive plan and
management structure for an effort of this magnitude.  Because USDA
has failed in past efforts to plan and manage IT modernization, and
because some of the same weaknesses are present with the ongoing
modernization, concerns exist that USDA could again fail unless it
acts to address these weaknesses. 

In August 1998, we recommended, among other things, that until it
resolves critical weaknesses, USDA should limit IT funding for its
service centers to only that necessary to bring mission-critical
systems in compliance with Year 2000 computing requirements.  USDA is
still in the process of determining how it will address our August
1998 recommendations. 


--------------------
\3 IT means any equipment or interconnected system or subsystem of
equipment that is used in the automatic acquisition, storage,
manipulation, management, movement, control, display, switching,
interchange, transmission, or reception of data or information. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:8.1

Joel C.  Willemssen, Director
Civil Agencies Information Systems
Accounting and Information Management
 Division
(202) 512-6408
[email protected]


   USDA FACES SERIOUS YEAR 2000
   COMPUTING CHALLENGES
---------------------------------------------------------- Chapter 1:9

If the systems that support USDA's various programs cannot operate
reliably into the next century, it will not take long for the effects
to be felt.  USDA's systems support many vital public health and
safety and economic activities, and if not properly fixed, tested,
and implemented, severe consequences could result.  While USDA and
its component agencies have begun to address the Year 2000 problem,
we testified in May 1998 that USDA will have a great deal of
difficulty correcting, testing, and implementing all of its hundreds
of mission-critical systems to work beyond 1999--that is to become
Year 2000 compliant--in time. 

Given the enormous risk posed by the Year 2000 challenge at USDA, we
also testified that USDA's Chief Information Officer and Year 2000
Program Office needed to provide more effective leadership in
overseeing USDA's Year 2000 efforts by setting Year 2000 priorities,
providing sufficient guidance, and adequately tracking progress. 

In response to our testimony, USDA took some actions to strengthen
and improve its Year 2000 program.  These actions included
establishing departmental priorities for its Year 2000 efforts;
issuing departmentwide guidance on business continuity and
contingency planning, systems testing, and independent verification
and validation; and revising progress reports to more accurately
reflect USDA's progress in making mission-critical systems Year 2000
compliant.  Even so, USDA faces a significant challenge renovating
and replacing all its mission-critical systems in time and taking the
necessary steps to ensure that vital public services are not
disrupted. 


      KEY CONTACT
-------------------------------------------------------- Chapter 1:9.1

Joel C.  Willemssen, Director
Civil Agencies Information Systems
Accounting and Information Management
 Division
(202) 512-6408
[email protected]


RELATED GAO PRODUCTS
============================================================ Chapter 2


   MAKING USDA'S FIELD STRUCTURE
   MORE EFFICIENT
---------------------------------------------------------- Chapter 2:1

U.S.  Department of Agriculture:  Administrative Streamlining Is
Expected to Continue Through 2002 (GAO/RCED-99-34, Dec.  11, 1998). 

U.S.  Department of Agriculture:  Status of Closing and Consolidating
County Offices (GAO/T-RCED-98-250, July 29, 1998). 

Farm Programs:  Service to Farmers Will Likely Change as Farm Service
Agency Continues to Reduce Staff and Close Offices (GAO/RCED-98-136,
May 1, 1998). 

Farm Programs:  Administrative Requirements Reduced and Further
Program Delivery Changes Possible (GAO/RCED-98-98, Apr.  20, 1998). 

Farm Programs:  Impact of the 1996 Farm Act on County Office Workload
(GAO/RCED-97-214, Aug.  19, 1997). 


   IMPROVING THE SAFETY OF OUR
   FOOD
---------------------------------------------------------- Chapter 2:2

Food Safety:  Opportunities to Redirect Federal Resources and Funds
Can Enhance Effectiveness (GAO/RCED-98-224, Aug.  6, 1998). 

Food Safety:  Federal Efforts to Ensure the Safety of Imported Foods
Are Inconsistent and Unreliable (GAO/RCED-98-103, Apr.  30, 1998). 

Food Safety:  Fundamental Changes Needed to Improve Food Safety
(GAO/RCED-97-249R, Sept.  9, 1997). 

Food Safety and Quality:  Uniform, Risk-based Inspection System
Needed to Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992). 


   IMPROVING EFFICIENCY AND
   REDUCING WASTE WITHIN THE
   FOREST SERVICE
---------------------------------------------------------- Chapter 2:3

Forest Service:  Weak Contracting Practices Increase Vulnerability to
Fraud, Waste, and Abuse (GAO/RCED-98-88, May 6, 1998). 

Forest Service:  Lack of Financial and Performance Accountability Has
Resulted in Inefficiency and Waste (GAO/T-RCED/AIMD-98-135, Mar.  26,
1998). 

Forest Service:  Barriers to Generating Revenue or Reducing Costs
(GAO/RCED-98-58, Feb.  13, 1998). 

Forest Service Decision-Making:  A Framework for Improving
Performance (GAO/RCED-97-71, Apr.  29, 1997). 


   REDUCING FARM LOAN DEFAULTS
---------------------------------------------------------- Chapter 2:4

Farm Service Agency:  Information on Farm Loans and Losses
(GAO/RCED-99-18, Nov.  27, 1998). 

Farm Service Agency:  Status of Farm Loan Portfolio and the Use of
Three Contracting Provisions for Loan Servicing (GAO/RCED-98-141, May
5, 1998). 

High-Risk Series:  Quick Reference Guide (GAO/HR-97-2, Feb.  1997). 

Farm Loans:  Information on the Status of USDA's Portfolio
(GAO/T-RCED-97-78, Feb.  21, 1997). 

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

High-Risk Series:  Farmers Home Administration's Farm Loan Programs
(GAO/HR-93-1, Dec.  1992). 


   REDUCING OVERPAYMENTS IN THE
   FOOD STAMP PROGRAM
---------------------------------------------------------- Chapter 2:5

Food Stamp Overpayments:  Households in Different States Collect
Benefits for the Same Individuals (GAO/RCED-98-228, Aug.  6, 1998). 

Food Stamp Program:  Information on Trafficking Food Stamp Benefits
(GAO/RCED-98-77, Mar.  26, 1998). 

Food Stamp Overpayments:  Thousands of Deceased Individuals Are Being
Counted as Household Members (GAO/RCED-98-53, Feb.  11, 1998). 

Food Stamps:  Substantial Overpayments Result From Prisoners Counted
as Household Members (GAO/RCED-97-54, Mar.  10, 1997). 


   ENHANCING USDA'S ABILITY TO
   ACCOUNT FOR ITS FINANCIAL
   ACTIVITIES
---------------------------------------------------------- Chapter 2:6

Forest Service:  Barriers to Financial Accountability Remain
(GAO/AIMD-99-1, Oct.  2, 1998). 

Forest Service:  Status of Progress Toward Financial Accountability
(GAO/AIMD-98-84, Feb.  27, 1998). 

Federal Management:  Overview of Major Management Issues Facing
Executive Agencies (GAO/OCG-98-1R, Jan.  9, 1998). 

Financial Management:  Forest Service's Progress Toward Financial
Accountability (GAO/AIMD-97-151R, Aug.  29, 1997). 

USDA Financial Systems:  Additional Actions Needed to Resolve Major
Problems (GAO/AIMD-95-222, Sept.  29, 1995). 


   BETTER MANAGEMENT CAN REDUCE
   TELECOMMUNI-
   CATIONS COSTS
---------------------------------------------------------- Chapter 2:7

USDA Telecommunications:  Strong Leadership Needed to Resolve
Management Weaknesses, Achieve Savings (GAO/AIMD-98-131, June 30,
1998). 

USDA Telecommunications:  More Effort Needed to Address Telephone
Abuse and Fraud (GAO/AIMD-96-59, Apr.  16, 1996). 

USDA Telecommunications:  Missed Opportunities To Save Millions
(GAO/AIMD-95-97, Apr.  24, 1995). 

USDA Telecommunications:  Better Management and Network Planning
Could Save Millions (GAO/AIMD-95-203, Sept.  22, 1995). 


   MULTIBILLION-DOLLAR
   MODERNIZATION OF SERVICE CENTER
   INFORMATION TECHNOLOGY
---------------------------------------------------------- Chapter 2:8

USDA Service Centers:  Multibillion Dollar Effort to Modernize
Processes and Technology Faces Significant Risks (GAO/AIMD-98-168,
Aug.  31, 1998). 

USDA Restructuring:  Refocus Info Share Program on Business Processes
Rather Than Technology (GAO/AIMD-94-156, Aug.  5, 1994). 


   YEAR 2000 CHALLENGE
---------------------------------------------------------- Chapter 2:9

Year 2000 Computing Crisis:  USDA Faces Tremendous Challenges in
Ensuring That Vital Public Services Are Not Disrupted
(GAO/T-AIMD-98-167, May 14, 1998). 


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. ***