High-Risk Areas: Update on Progress and Remaining Challenges (Testimony,
02/13/97, GAO/T-HR-97-22).

GAO discussed major government programs and operations it has identified
as high risk because of vulnerability to waste, fraud, abuse, and
mismanagement and legislative and agency actions that have resulted in
progress towards resolving these problems.

GAO noted that: (1) without additional attention to resolve problems in
the 25 areas that are the current focus of GAO's high-risk initiative,
the government will continue to miss huge opportunities to save billions
of dollars, make better investments to reap the benefits of information
technology, improve performance and provide better service, and more
effectively manage the cost of government programs; (2) effective and
sustained follow-through by agency managers is essential to make further
headway and achieve greater benefits; (3) continued oversight by
Congress will add essential impetus to ensuring progress as well; (4)
landmark legislation passed by Congress in the 1990s has established
broad management reforms, which, with successful implementation, will
help resolve high-risk problems and provide greater accountability in
many government programs and operations; (5) overall, agencies are
taking high-risk problems seriously, trying to correct them, and making
progress in many areas; (6) Congress has also acted to address several
problems affecting these high-risk areas through oversight hearings and
specific legislative initiatives; (7) full and effective implementation
of legislative mandates, GAO suggestions, and corrective measures by
agencies, however, have not yet been achieved because the high-risk
areas involve long-standing problems that are difficult to correct; (8)
federal agencies often fail to appropriately manage their finances,
identify clearly what they intend to accomplish, or do the job
effectively with a minimum of waste; (9) the Government Performance and
Results Act (GPRA) requires agencies to set goals, measure performance,
and report on their accomplishments; (10) GPRA will be more difficult
for some agencies to apply than for others, but GPRA has the potential
for adding greatly to government performance, a particularly vital goal
at a time when resources are limited and public demand is high; (11)
reliable financial information is key to better managing government
programs, providing accountability, and addressing high-risk problems,
but financial information has not been reliable enough to use in federal
decisionmaking or to provide the requisite public accountability; (12)
the landmark Chief Financial Officers Act spelled out a long overdue and
ambitious agenda to help resolve financial management deficiencies; and
(13) important and steady progress is being made under the act to bring*

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

 REPORTNUM:  T-HR-97-22
     TITLE:  High-Risk Areas: Update on Progress and Remaining Challenges
      DATE:  02/13/97
   SUBJECT:  Program abuses
             Congressional oversight
             Federal procurement
             Information technology
             Information resources management
             Financial management systems
             Federal agency reorganization
             Cost control
             Internal controls
             Risk management
IDENTIFIER:  DOD Corporate Information Management Initiative
             CIM
             IRS Tax System Modernization Program
             TSM
             Medicare Program
             IRS Electronic Filing System
             HCFA Medicare Transaction System
             Superfund Program
             2000 Decennial Census
             FAA Air Traffic Control Modernization Program
             Supplemental Security Income Program
             GAO High Risk Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Government Management, Information and
Technology, Committee on Government Reform and Oversight, House of
Representatives

For Release on Delivery
Expected at
9:30 a.m.
Thursday,
February 13, 1997

HIGH-RISK AREAS - UPDATE ON
PROGRESS AND REMAINING CHALLENGES

Statement of Gene L.  Dodaro
Assistant Comptroller General
Accounting and Information Management Division

GAO/T-HR-97-22

GAO/HR-97-22T


(918898)


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

  ATC - air traffic control
  CFO - Chief Financial Officer
  CIM - Corporate Information Management
  DOD - Department of Defense
  DOE - Department of Energy
  EPA - Environmental Protection Agency
  FAA - Federal Aviation Administration
  GPRA - Government Performance and Results Act of 1993
  HCFA - Health Care Financing Administration
  HUD - Department of Housing and Urban Development
  IRS - Internal Revenue Service
  MTS - Medicare Transaction System
  NASA - National Aeronautics and Space Administration
  NWS - National Weather Service
  SSI - Supplemental Security Income
  TSM - tax systems modernization

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss major government programs
and operations we have identified as high risk because of
vulnerabilities to waste, fraud, abuse, and mismanagement.  In 1990,
we began a special effort to review and report on such activities,
and yesterday we issued a series of reports providing the current
status of the 20 high-risk areas we have been monitoring since our
last major progress report 2 years ago. 

Over the past 7 years, we have called attention to critical
government operations that are high risk.  To help improve this
situation, we have made hundreds of recommendations to get at the
heart of these problem areas, which have at their core a lack of
fundamental accountability. 

Today, we will highlight the legislative and agency actions that have
resulted in progress toward fixing these problems.  Such actions have
established a solid foundation to help ensure greater progress, but
much remains to be done to fully implement the corrective actions
needed to remove the high-risk designation from these areas. 

In addition, we will discuss five new areas that we have just
designated as high risk.  These new areas have been added because
they are serious, growing problems and provide opportunities to
achieve significant savings and better service to the public. 

Without additional attention to resolve problems in the 25 areas that
are the current focus of our high-risk initiative, the government
will continue to miss huge opportunities to save billions of dollars,
make better investments to reap the benefits of information
technology, improve performance and provide better service, and more
effectively manage the cost of government programs.  Effective and
sustained follow-through by agency managers is essential to make
further headway and achieve greater benefits.  Continued oversight by
the Congress, such as this hearing by the Subcommittee, will add
essential impetus to ensuring progress as well. 

Landmark legislation passed by the Congress in the 1990s has
established broad management reforms, which, with successful
implementation, will help resolve high-risk problems and provide
greater accountability in many government programs and operations: 

  -- The expanded Chief Financial Officers (CFO) Act of 1990 requires
     agencies to prepare financial statements that can pass the test
     of an independent audit and provide decisionmakers reliable
     financial information. 

  -- The 1993 Government Performance and Results Act requires
     agencies to measure performance and focus on results. 

  -- The 1995 Paperwork Reduction Act and the 1996 Clinger-Cohen Act
     provide a basis for agencies to make wiser investments in
     information technology. 

  -- The Debt Collection Improvement Act of 1996 strengthens federal
     agencies' debt collection practices and authorities. 


   PROGRESS IN RESOLVING HIGH-RISK
   PROGRAM AREAS
---------------------------------------------------------- Chapter 0:1

Overall, agencies are taking high-risk problems seriously, trying to
correct them, and making progress in many areas.  The Congress has
also acted to address several problems affecting these high-risk
areas through oversight hearings and specific legislative
initiatives.  Full and effective implementation of legislative
mandates, our suggestions, and corrective measures by agencies,
however, has not yet been achieved because the high-risk areas
involve long-standing problems that are difficult to correct. 

The following discussion provides a quick synopsis of progress and
remaining challenges related to many high-risk areas.  Detailed
information on the current status of all 25 high-risk areas, which
are listed in appendix I, is available in our overview report, quick
reference guide, and individual reports included in our set of 1997
high-risk reports.  Reports included in this series are listed at the
end of this testimony. 


      PROVIDING FOR ACCOUNTABILITY
      AND COST-EFFECTIVE
      MANAGEMENT OF DEFENSE
      PROGRAMS
-------------------------------------------------------- Chapter 0:1.1

Our high-risk initiative has monitored five areas that affect
accountability and cost-effective management of Department of Defense
(DOD) programs:  financial management, contract management, inventory
management, weapon systems acquisition, and the Corporate Information
Management (CIM) initiative.  These areas are key to effectively
managing DOD's vast resources, including a budget of over $250
billion in fiscal year 1996 and over $1 trillion in assets worldwide. 
While improvement activities have been started, DOD's high-risk
problems are especially serious and much remains to be done to
resolve them. 

First, DOD's lingering financial management problems are among the
most severe in government.  For example, the Department has
acknowledged over 30 material weaknesses that cross the spectrum of
its financial operations, including continuing problems in accurately
accounting for billions of dollars in problem disbursements.  Also,
DOD has reported that of its nearly 250 financial systems only 5
conform fully with governmentwide financial systems standards. 
Further, financial audits have highlighted significant deficiencies
in every aspect of DOD's financial management and reporting,
resulting in the failure of any major DOD component to receive a
positive audit opinion.  Since 1990, auditors have made over 400
recommendations aimed at helping to correct these weaknesses. 

Deficiencies such as these prevent DOD managers from obtaining the
reliable financial information needed to make sound decisions on
alternate uses for both current and future resources.  DOD's
financial management leaders have recognized the importance of
tackling these problems and have many initiatives under way to
address widespread financial management problems.  Fixing DOD's
financial management problems is also critical to the resolution of
the Department's other high-risk areas. 

In addition, as DOD seeks to streamline its contracting and
acquisition processes--including contract administration and
audit--to adjust to reduced staffing levels, new business process
techniques will be key to accomplishing effective and efficient
oversight in the future.  DOD contracts now cost about $110 billion
annually.  Without an improved and simplified contract payment
system, DOD continues to risk overpaying contractors millions of
dollars.  DOD is aware of the seriousness of its payment problems and
is taking steps to address them.  Also, DOD needs to further
strengthen its oversight of contractor cost-estimating systems, which
are critical to ensuring sound price proposals and reducing the risk
that the government will pay excessive prices.  While DOD has
improved its oversight of contractors' cost-estimating systems, poor
cost-estimating systems remain an area of concern at some contractor
locations. 

Further, about half of DOD's centrally managed inventory of spare
parts, clothing, medical supplies, and other secondary inventory
items, which totaled about $70 billion in September 1995, does not
need to be on hand to support war reserves or current operating
requirements.  DOD has had some success in addressing its inventory
management problems and is in the midst of changing a culture that
believed it was better to overbuy items than to manage with just the
amount of stock needed.  Also, with reduced force levels and the
implementation of some of our recommendations, DOD has reduced its
centrally managed inventory by about $20 billion.  DOD has
implemented certain commercial best practices, but only in a very
limited manner and has made little progress in developing the
management tools needed to help solve its long-term inventory
management problems.  Consequently, inventory managers continue to
have difficulty managing DOD's multibillion dollar inventory supply
systems efficiently and effectively. 

Also, despite DOD's past and current efforts to reform its
acquisition system, wasteful practices still add billions of dollars
to defense weapon systems acquisition costs, which are about $79
billion annually.  DOD continues to (1) generate and support
acquisition of new weapon systems that will not satisfy the most
critical weapon requirements at minimal cost and (2) commit more
procurement funds to programs than can reasonably be expected to be
available in future defense budgets.  Many new weapon systems cost
more and do less than anticipated, and schedules are often delayed. 
Moreover, the need for some of these costly weapons, particularly
since the collapse of the Soviet Union, is questionable. 

Finally, DOD started the CIM initiative in 1989 with the expectation
of saving billions of dollars by streamlining operations and
implementing standard information systems supporting such important
business areas as supply distribution, material management,
personnel, finance, and transportation.  However, 8 years after
beginning CIM, and after spending a reported $20 billion, DOD's
savings goal has not been met because the Department has not yet
implemented sound management practices.  Not surprising, the results
of DOD's major technology investments have been meager and some
investments are likely to result in a negative return on investment. 

The Department estimates that it will spend more than an additional
$11 billion on system modernization projects between now and the year
2000.  As part of its Clinger-Cohen Act implementation efforts, the
Department is establishing a framework to use its planning,
programming, and budgeting system to better manage this investment. 
While this framework is a step in the right direction, these
corrective actions are just the beginning. 


      IMPROVING INTERNAL REVENUE
      SERVICE MANAGEMENT AND
      OPERATIONS
-------------------------------------------------------- Chapter 0:1.2

At the Internal Revenue Service (IRS) we have monitored four
high-risk areas that affect IRS' ability to ensure that all revenues
are collected and accounted for:  financial management, accounts
receivable, filing fraud, and tax systems modernization (TSM).  In
1995, IRS reported collecting $1.4 trillion from taxpayers,
disbursing $122 billion in tax refunds, and managing an estimated
accounts receivable inventory of $113 billion in delinquent taxes. 

The reliability of IRS' financial information is critical to
effectively manage the collection of revenue to fund the government's
operations.  However, our audits of IRS' financial statements have
identified many significant weaknesses in accurately accounting for
revenue and accounts receivable, as well as for funds provided to
carry out IRS' operations.  IRS has made progress in improving
payroll processing and accounting for administrative operations and
is working on solutions to revenue and accounts receivable accounting
problems.  However, much remains to be done, and effective management
follow-through is essential to achieving fully the goals of the CFO
Act. 

In addition, IRS is hampered in efficiently and effectively managing
its huge inventory of accounts receivable due to inadequate
management information.  The root cause here is IRS' antiquated
information systems and outdated business processes, which handle
over a billion tax returns and related documents annually.  IRS has
undertaken many initiatives to deal with its accounts receivable
problems, including correcting errors in its tax receivable
masterfile and attempting to speed up aspects of the collection
process.  Efforts such as these appear to have had some impact on
collections and the tax debt inventory, but many of the efforts are
long-term in nature and demonstrable results may not be available for
several years. 

Further, IRS' efforts to reduce filing fraud have resulted in some
success, especially through more rigid screening in the electronic
filing program, but this continues to be a high-risk area.  IRS' goal
is to increase electronic filings, which would strengthen its fraud
detection capabilities.  But to achieve its electronic filing goal,
IRS must (1) identify those groups of taxpayers who offer the
greatest opportunity for filing electronically and (2) develop
strategies focused on eliminating or alleviating impediments that
have inhibited those groups from participating in the program. 

In attempting to overhaul its timeworn, paper-intensive approach to
tax return processing, IRS has spent or obligated over $3 billion on
its TSM efforts.  This program has encountered severe difficulties. 
Currently, funding for the initiative has been curtailed, and IRS and
the Department of the Treasury are taking several steps to address
modernization problems and implement our recommendations.  However,
much more progress is needed to fully resolve serious underlying
management and technical weaknesses. 


      CONTROLLING FRAUD, WASTE,
      AND ABUSE IN MEDICARE CLAIMS
-------------------------------------------------------- Chapter 0:1.3

Also, Medicare--the nation's second largest social program--is
inherently vulnerable to and a perpetually attractive target for
exploitation.  The Congress and the President have been seeking to
introduce changes to Medicare to help control program costs, which
were $197 billion in fiscal year 1996.  At the same time, they are
concerned that the Medicare program loses significant amounts due to
persistent fraudulent and wasteful claims and abusive billings.  The
Congress has passed the Health Insurance Portability and
Accountability Act of 1996 to protect Medicare from exploitation by
adding funding to bolster program safeguard efforts and making the
penalties for Medicare fraud more severe.  Effective implementation
of this legislation and other agency actions is key to mitigating
many of Medicare's vulnerabilities to fraud and abuse. 

Also, the Health Care Financing Administration (HCFA), which runs the
Medicare program, has begun to acquire a new claims processing
system, the Medicare Transaction System (MTS), to provide, among
other things, better protection from fraud and abuse.  In the past,
we have reported on risks associated with this project, including
HCFA's plan to implement the system in a single stage rather than
incrementally, difficulty in defining requirements, inadequate
investment analysis, and significant schedule problems.  HCFA has
responded to these concerns by (1) changing its single- stage
approach to one under which the system will be implemented
incrementally and (2) working to resolve other reported problems. 


      MINIMIZING LOAN PROGRAM
      LOSSES
-------------------------------------------------------- Chapter 0:1.4

Since our high-risk program began 7 years ago, we have called
attention to difficulties major lending agencies--the Departments of
Housing and Urban Development (HUD), Education, and Agriculture--have
experienced in managing federal credit programs and the government's
resulting exposure to large losses.  As of September 30, 1995, total
federal credit assistance outstanding was reported to be over $941
billion, consisting of (1) $204 billion in loans receivables held by
federal agencies, including $160 billion in direct loans and $44
billion in defaulted guaranteed loans that are now receivables of the
federal government, and (2) $737 billion in loans guaranteed by the
federal government. 

HUD is responsible for managing more than $400 billion in insured
loans; $435 billion in outstanding securities; and, in fiscal year
1995, over $31.8 billion in discretionary budget outlays.  However,
effectively carrying out these responsibilities is hampered by HUD's
weak internal controls, inadequate information and financial
management systems, an ineffective organization structure, and an
insufficient mix of staff with the proper skills.  These problems are
not new--we reported them in 1995 and they were a major factor
contributing to the incidents of fraud, waste, abuse, and
mismanagement reported in the late 1980s. 

HUD has undertaken some improvement efforts to correct these problems
through such means as implementing a new management planning and
control program.  However, HUD's improvement efforts are far from
fruition, and long-standing, fundamental problems remain.  HUD's
program will remain high risk until the agency completes more of its
planned corrective actions and the administration and the Congress
reach closure on a restructuring that (1) focuses HUD's mission and
(2) consolidates, reengineers, and/or reduces HUD's programs.  What
is needed is for the administration and the Congress to agree on the
future direction of federal housing and community development policy
and put in place the organizational and program delivery structures
that are best suited to carry out that policy. 

Actions by the Department of Education, combined with legislative
changes, have achieved some results in addressing many of the
underlying problems with the student financial aid programs'
structure and management.  In fiscal year 1995, the federal
government paid out over $2.5 billion to make good its guarantee on
defaulted student loans--an amount that represents an improvement
over the last several years.  The Department has taken many
administrative actions to correct problems and improve program
controls, but it must overcome management and oversight problems that
have contributed to abuses by some participating schools. 

Since our last high-risk report series in 1995, the Congress has
enacted legislation--Title VI of the Federal Agriculture Improvement
and Reform Act of 1996--to make fundamental changes in the farm loan
programs' loan-making, loan-servicing, and property management
policies.  The Department of Agriculture is in the process of
implementing the new legislative mandates and other administrative
reforms to resolve farm loan program risks.  The impact of these
actions on the $17 billion farm loan portfolio's financial condition
will not be known for some time. 

The Debt Collection Improvement Act of 1996 also was enacted to
expand and strengthen agencies' debt collection practices and
authorities.  This important new legislation can provide a much
needed new impetus to improve lending program performance, but it
will take time to implement the act.  Additional agency attention to
improve lending management and actions by the Congress are necessary
as well. 


      IMPROVING MANAGEMENT OF
      FEDERAL CONTRACTS AT
      CIVILIAN AGENCIES
-------------------------------------------------------- Chapter 0:1.5

With government downsizing, civilian agencies will continue to rely
heavily on contractors to operate programs.  While this approach can
help to achieve program goals with a reduced workforce, it can also
result in increased vulnerability to risks, such as schedule
slippages, cost growth, and contractor overpayments.  Our high-risk
program has followed efforts to resolve contract management
weaknesses undertaken by several of the government's largest civilian
contracting agencies--the Department of Energy (DOE), the National
Aeronautics and Space Administration (NASA), and the Environmental
Protection Agency (EPA) for the Superfund. 

Most of DOE's $17.5 billion in 1995 contract obligations was for its
management and operating contracts.  DOE has made headway in
overcoming its history of weak contractor management through a major
contract reform effort that has included developing an extensive
array of policies and procedures.  Although the Department recently
adopted a policy favoring competition in the award of these
contracts, in actual practice most contracts continue to be made
noncompetitively. 

NASA has made considerable progress in better managing and overseeing
contracts, for which it spends about $13 billion a year.  The
improvements have included establishing a process for collecting
better information for managing contractor performance and placing
greater emphasis on contract cost control and contractor performance. 
Our most recent work, however, identified additional problems in
contract management and opportunities for improving procurement
oversight. 

For the past several years, EPA has focused attention on
strengthening its management and oversight of Superfund contractors. 
Nonetheless, EPA remains vulnerable to contractor overpayments.  At
the same time, the magnitude of the nation's hazardous waste problem,
estimated to cost hundreds of billions of dollars, calls for the
efficient use of available funds to protect public health and the
environment. 


   NEW HIGH-RISK AREAS HAVE
   EMERGED
---------------------------------------------------------- Chapter 0:2

In addition to the 20 areas we previously designated high risk, we
are adding 5 new ones.  We are alerting the Congress to these new
areas because they involve serious problems:  fraud and abuse in
benefit claims, widespread computer security weaknesses, inefficient
Department of Defense operation and support activities, the
possibility of disastrous computer disruptions in service to the
public, and the potential for a costly, unsatisfactory 2000 Decennial
Census. 

The first newly designated high-risk area involves overpayments in
the Supplemental Security Income (SSI) program, which provided about
$22 billion in federal benefits to recipients between January 1,
1996, and October 31, 1996.  One root cause of SSI overpayments,
which have grown to over $1 billion annually, is the difficulty the
Social Security Administration has in corroborating financial
eligibility information that program beneficiaries self report and
that affects their benefit levels.  Determining whether a claimant's
impairment qualifies an individual for disability benefits can often
be difficult as well, especially in cases involving applicants with
mental impairments and other hard-to-diagnose conditions. 

Second, information systems security weaknesses across government
have now been designated high risk.  These weaknesses pose high risk
of unauthorized access and disclosure or malicious use of sensitive
data.  Many federal operations that rely on computer networks are
attractive targets for individuals or organizations with malicious
intention.  Examples of such operations include law enforcement,
import entry processing and various financial transactions.  Most
notably, DOD's systems may have experienced as many as 250,000
attacks from hackers during 1995 alone, with about 64 percent of them
being successful and most going undetected.  Since June 1993, we have
issued over 30 reports describing serious information security
weaknesses at major federal agencies.  In September 1996, we reported
that during the previous 2 years, serious information security
control weaknesses had been reported for 10 of the 15 largest federal
agencies.  We have made dozens of recommendations to individual
agencies and the Office of Management and Budget for improvement, and
they have started acting on many of them. 

Third, DOD's efforts to reduce its infrastructure will now be
monitored as part of our high-risk efforts.  Over the last 7 to 10
years, DOD has reduced operations and support costs, which will
amount to about $146 billion this year.  However, billions of dollars
are wasted annually on inefficient and unneeded DOD activities.  DOD
has, in recent years, undergone substantial downsizing in force
structure.  However, commensurate reductions in operations and
support costs have not been achieved.  Reducing the cost of excess
infrastructure activities is critical to maintaining high levels of
military capacities.  Expenditures on wasteful or inefficient
activities divert limited defense funds from pressing defense needs,
such as the modernization of weapon systems. 

Fourth, we have designated another serious governmentwide computer
information systems issue, the Year 2000 Problem, as a new high-risk
area.  This problem poses the high risk that computer systems
throughout government will fail to run or malfunction because
computer equipment and software were not designed to accommodate the
change of date at the new millennium.  For example, IRS' tax systems
could be unable to process returns, which in turn could jeopardize
the collection of revenue and the entire tax processing system. 
Federal systems used to track student education loans could produce
erroneous information on their status, such as indicating that an
unpaid loan has been satisfied.  Or the Social Security
Administration's disability insurance process could experience major
disruptions because the interface with various state systems fails,
thereby causing delays and interruptions in disability payments to
citizens. 

The fifth new high-risk area involves the need for agreement between
the administration and the Congress on an approach that will both
minimize the risk of an unsatisfactory 2000 Decennial Census and keep
the cost of doing it within reasonable bounds.  The longer the delay
in securing agreement over design and funding, the more difficult it
will be to execute an effective census, and the more likely it will
be that the government will have spent billions of dollars and still
have demonstrably inaccurate results.  The country can ill afford an
unsatisfactory census at the turn of the century, especially if it
comes at a substantially higher cost than previous censuses.  The
census results are critical to apportioning seats in the House of
Representatives; they are also used to allocate billions of dollars
in federal funds for numerous programs and to guide the plans for
decisions of government, business, education, and health institutions
in the multibillion dollar investments they make. 


   FOCUSING ATTENTION ON HIGH-RISK
   AREAS
---------------------------------------------------------- Chapter 0:3

Shifting to the future, the government can gain major benefits by
focusing on the resolution of high-risk problems and fully and
effectively implementing the legislative foundation established for
broader management reforms.  As countless studies we have performed
have long noted and our high-risk series of reports demonstrates,
federal agencies often fail to appropriately manage their finances,
identify clearly what they intend to accomplish, or do the job
effectively with a minimum of waste.  Left unresolved, persistent and
long-standing high-risk areas will result in the government
continuing to needlessly lose billions of dollars and missing huge
opportunities to achieve its objectives at less cost and with better
service delivery. 


      ACHIEVING SUBSTANTIAL
      SAVINGS AND OTHER MONETARY
      BENEFITS
-------------------------------------------------------- Chapter 0:3.1

The 25 areas that are the focus of our high-risk program cover almost
all of the government's annual $1.4-trillion revenue collection
efforts and hundreds of billions of dollars in annual federal
expenditures.  Consequently, further progress to fully and
effectively implement actions to resolve high-risk problems can
result in substantial savings, for example, by

  -- reducing Medicare losses due to fraudulent and abusive claims,
     which could be from $6 billion to as much as $20 billion based
     on 1996 outlays;

  -- decreasing SSI overpayments, which have grown to over $1 billion
     a year;

  -- cutting back further on unneeded centrally managed defense
     inventories, which DOD succeeded in reducing by $23 billion
     during the 6-year period from 1989 to 1995;

  -- implementing better practices for acquiring weapon systems and
     reducing defense infrastructure, which are two areas that each
     experience billions of dollars in unneeded costs annually; and

  -- adopting improved contract management practices, as NASA is
     doing with considerable progress.  For instance, NASA lowered
     the value of contract changes for which prices had not yet been
     negotiated from $6.6 billion in December 1991 to less than $500
     million in September 1996. 

In addition, overcoming several high-risk problems has great
potential for increased collections or other monetary gains to the
government.  For instance, these benefits are possible by

  -- further preventing or deterring tax filing fraud, which involved
     over 62,000 fraudulent returns with refunds of almost $132
     million in 1995;

  -- reducing the growing inventory of tax assessments, which was
     $216 billion at the end of fiscal year 1996;

  -- ensuring that duties, taxes, and fees on importations are
     properly assessed and collected by the Customs Service and that
     refunds of such amounts are valid; and

  -- continuing to implement improved credit management practices. 
     For example, the Department of Education has increased
     collections on defaulted loans from $1 billion in fiscal year
     1992 to $2 billion in fiscal year 1995. 


      MAKING BETTER INVESTMENTS TO
      REAP POTENTIAL BENEFITS FROM
      INFORMATION TECHNOLOGY
-------------------------------------------------------- Chapter 0:3.2

Information technology is now integral to nearly every aspect of
federal government operations and thus, is pivotal to the
government's interaction with the public and critical to public
health and safety issues.  In the past 6 years, federal agencies have
spent about $145 billion on information systems.  Yet, despite years
of experience in developing and acquiring systems, agencies across
government continue to have chronic problems harnessing the full
potential of information technology to improve performance, cut
costs, and/or enhance responsiveness to the public. 

We have already discussed in this testimony the high risks associated
with two multibillion dollar information systems modernizations--IRS'
tax systems modernization and DOD's corporate information management
initiative.  In addition, the information systems modernization
efforts of other agencies are at risk of being late, running over
cost, and falling short of promised benefits.  Our high-risk
initiative includes two of these modernizations--those at the Federal
Aviation Administration (FAA) and the National Weather Service (NWS). 

FAA's $34-billion air traffic control (ATC) modernization has
historically experienced cost overruns, schedule delays, and
performance shortfalls.  While FAA has had success on a recent small,
well defined effort to replace one aging system, the underlying
causes of its past problems in modernizing larger, more complex ATC
systems remain and must be addressed for the modernization to
succeed.  We recently identified and made recommendations to correct
several of these root causes, including (1) strengthening project
cost estimating and accounting practices and (2) defining and
enforcing an ATC-wide system architecture, and we have work under way
to identify other improvements that could help to resolve the
modernization's long-standing problems. 

The success of NWS' $4.5 billion modernization effort hinges on how
quickly the Service addresses problems with the existing system's
operational effectiveness and efficient maintenance and on how well
it develops and deploys the remaining system.  NWS has acknowledged
that a technical blueprint is needed and is currently developing one. 

To improve situations such as these and stop bad information
technology investments, we have worked closely with the Congress to
fundamentally revamp and modernize federal information management
practices.  Our study of leading public and private sector
organizations showed how they applied an integrated set of management
practices to create the information technology infrastructure they
needed to dramatically improve their performance and achieve mission
goals.\1 These practices provide federal agencies with essential
lessons in how to overcome the root causes of their chronic
information management problems. 

The 104th Congress used these lessons to create the first significant
reform in information technology management in over a decade:  the
1995 Paperwork Reduction Act and the Clinger-Cohen Act of 1996. 
These laws require agencies to implement a framework of modern
technology management--one that is based on practices followed by
leading public and private sector organizations that have
successfully used technology to dramatically improve performance and
meet strategic goals. 

These laws emphasize involving senior executives in information
management decisions, establishing senior-level Chief Information
Officers, tightening controls over technology spending, redesigning
inefficient work processes, and using performance measures to assess
technology's contribution to achieving mission results.  These
management practices provide a proven, practical means of addressing
the federal government's information problems, maximizing benefits
from technology spending, and controlling the risks of systems
development efforts.  The challenge now is for agencies to apply this
framework to their own technology efforts, particularly those at high
risk of failure. 


--------------------
\1 Executive Guide:  Improving Mission Performance Through Strategic
Information Management and Technology--Learning from Leading
Organizations (GAO/AIMD-94-115, May 1994). 


      IMPROVING PERFORMANCE AND
      PROVIDING BETTER SERVICE
-------------------------------------------------------- Chapter 0:3.3

Traditionally, federal agencies have used either the amount of money
directed toward their programs, the level of staff deployed, or even
the number of tasks completed as some of the measures of their
performance.  But at a time when the value of many federal programs
is undergoing intense public scrutiny, an agency that reports only
these measures has not answered the defining question of whether
these programs have produced real results. 

For high-risk areas, measuring performance and focusing on results is
key to pinpointing opportunities for improved performance and
increased accountability.  For instance, performance measures would
be useful for

  -- guiding management of defense inventory levels to prevent the
     procurement of billions of dollars of centrally managed
     inventory items that may not be needed;

  -- reaching agreement with the Congress on and monitoring
     acceptable levels of errors in benefit programs, which may never
     be totally eliminated but can be much better controlled;

  -- monitoring loan loss levels and delinquency rates for the
     government's direct loan and loan guarantee
     programs--multibillion dollar operations in which loses for a
     variety of programs involving farmers, students, and home buyers
     are expected but can be minimized with greater oversight; and

  -- assessing the results of tax enforcement initiatives, delinquent
     tax collection activities, and filing fraud reduction efforts. 

Yesterday, we testified before the Committee on using the Government
Performance and Results Act of 1993 (GPRA) to assist congressional
and executive branch decision-making.  Under GPRA, every major
federal agency must now ask itself basic questions about performance
to be measured and how performance information can be used to make
improvements. 

GPRA requires agencies to set goals, measure performance, and report
on their accomplishments.  This will not be an easy transition, nor
will it be quick.  GPRA will be more difficult for some agencies to
apply than for others.  But GPRA has the potential for adding greatly
to government performance--a particularly vital goal at a time when
resources are limited and public demand is high.  To help the
Congress and federal managers put GPRA into effect, we have
identified key steps that agencies need to take toward its
implementation, along with a set of practices that can help make that
implementation a success.\2


--------------------
\2 Executive Guide:  Effectively Implementing the Government
Performance and Results Act (GAO/GGD-96-118, June 1996). 


      MANAGING THE COST OF
      GOVERNMENT PROGRAMS MORE
      EFFECTIVELY
-------------------------------------------------------- Chapter 0:3.4

Reliable financial information is key to better managing government
programs, providing accountability, and addressing high-risk
problems.  The government's financial systems are all too often
unable to perform the most rudimentary bookkeeping for organizations,
many of which are oftentimes much larger than many of the nation's
largest private corporations.  Federal financial management suffers
from decades of neglect and failed attempts to improve financial
management and modernize outdated financial systems.  This situation
is illustrated in a number of high-risk areas, including

  -- the weaknesses that permeate critical DOD financial management
     areas,

  -- the substantial improvements that are needed in IRS' accounting
     and financial reporting,

  -- the significant problems that continue to be identified during
     audits of the Customs Service's financial statements, and

  -- the fundamental control weaknesses that resulted in the HUD
     Inspector General being unable to give an opinion on the
     Department's fiscal year 1995 financial statements. 

As a result of situations such as these, financial information has
not been reliable enough to use in federal decision-making or to
provide the requisite public accountability.  Good information on the
full costs of federal operations is frequently absent or extremely
difficult to reconstruct, and complete, useful financial reporting is
not yet in place. 

The landmark Chief Financial Officers (CFO) Act spelled out a long
overdue and ambitious agenda to help resolve these types of financial
management deficiencies.  Important and steady progress is being made
under the act to bring about sweeping reforms and rectify the
devastating legacy from inattention to financial management. 
Moreover, the regular preparation of financial statements and
independent audit opinions required by the 1990 act, as expanded by
the Government Management Reform Act of 1994, are bringing greater
clarity and understanding to the scope and depth of problems and
needed solutions. 

Under the expanded CFO Act, the 24 largest agencies are required to
prepare and have audited financial statements for their entire
operations, beginning with those for fiscal year 1996.  Together,
these agencies account for virtually the entire federal budget. 
Also, the 1994 expansion of the act requires the preparation and
audit of consolidated governmentwide financial statements, beginning
with those for fiscal year 1997. 

Making CFO Act reforms a reality in the federal government remains a
challenge and a great deal more perseverance will be required to
sustain the current momentum and successfully overcome decades of
serious neglect in fundamental financial management operations and
reporting methods.  But fully and effectively implementing the CFO
Act is a very important effort because it is a key to achieving
better accountability; implementing broader management reforms, such
as GPRA; and providing the nation's leaders and the public with a
wealth of relevant information on the government's true financial
status. 


-------------------------------------------------------- Chapter 0:3.5

We will continue to identify ways for agencies to more effectively
manage and control high-risk areas and to make recommendations for
improvements that can be implemented to overcome the root causes of
these problems.  Also, we have long supported annual congressional
hearings that focus on agencies' accountability for correcting
high-risk problems and implementing broad management reforms. 

Mr.  Chairman, this concludes my statement.  I would be happy to now
respond to any questions. 


AREAS DESIGNATED HIGH RISK
============================================================ Chapter I


   PROVIDING FOR ACCOUNTABILITY
   AND COST-EFFECTIVE MANAGEMENT
   OF DEFENSE PROGRAMS
---------------------------------------------------------- Chapter I:1

Financial management
Contract management
Inventory management
Weapon systems acquisition
Defense infrastructure (added in 1997)


   ENSURING ALL REVENUES ARE
   COLLECTED AND ACCOUNTED FOR
---------------------------------------------------------- Chapter I:2

IRS financial management
IRS receivables
Filing fraud
Tax Systems Modernization
Customs Service financial management
Asset forfeiture programs


   OBTAINING AN ADEQUATE RETURN ON
   MULTIBILLION DOLLAR INVESTMENTS
   IN INFORMATION TECHNOLOGY
---------------------------------------------------------- Chapter I:3

Tax Systems Modernization
Air traffic control modernization
Defense's Corporate Information Management initiative
National Weather Service modernization
Information security (added in 1997)
The Year 2000 Problem (added in 1997)


   CONTROLLING FRAUD, WASTE, AND
   ABUSE IN BENEFIT PROGRAMS
---------------------------------------------------------- Chapter I:4

Medicare
Supplemental Security Income (added in 1997)


   MINIMIZING LOAN PROGRAM LOSSES
---------------------------------------------------------- Chapter I:5

HUD
Farm loan programs
Student financial aid programs


   IMPROVING MANAGEMENT OF FEDERAL
   CONTRACTS AT CIVILIAN AGENCIES
---------------------------------------------------------- Chapter I:6

Department of Energy
NASA
Superfund



Also, planning for the 2000 Decennial Census was designated high risk
in February 1997. 


1997 HIGH-RISK SERIES
=========================================================== Chapter II

An Overview (GAO/HR-97-1)

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

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

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

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

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

Defense Infrastructure (GAO/HR-97-7)

IRS Management (GAO/HR-97-8)

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

Medicare (GAO/HR-97-10)

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

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

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

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



The entire series of 14 high-risk reports is numbered
GAO/HR-97-20SET. 

*** End of document. ***