Major Management Challenges and Program Risks: Departments of Defense,
State, and Veterans Affairs (Testimony, 02/25/99,
GAO/T-NSIAD/HEHS/AIMD-99-104).

Pursuant to a congressional request, GAO discussed the major management
challenges and program risks confronting the Department of Defense
(DOD), Department of State, and Department of Veterans Affairs (VA),
focusing on: (1) the management challenges DOD, State, and VA must
address to improve the efficiency of their support functions; and (2)
whether these departments are meeting performance and accountability
goals and measurements that are required under the Government
Performance and Results Act of 1993.

GAO noted that: (1) DOD has implemented a number of departmentwide
reform initiatives that are intended to improve some of its processes
along with key business practices; (2) despite DOD's military successes,
many of DOD's programs and operations are still vulnerable to fraud,
waste, abuse, and mismanagement, and need improvement; (3) overcoming
these challenges requires DOD to address the underlying causes, such as
cultural barriers and service parochialism, that limit opportunities for
change; (4) to address these problems, DOD must have an effective
overall strategic plan for the agency and all levels of the organization
that includes goals, performance measures, and timeframes for completing
corrective actions; (5) the Results Act provides the framework for
resolving high risk and other problems and for providing greater
accountability in DOD's programs and operations; (6) however, DOD has
not fully embraced the underlying principles in the Results Act; (7) in
GAO's past and ongoing work at State, GAO has identified a number of
performance and management challenges State faces in carrying out its
mission, such as providing enhanced overseas security, upgrading its
information systems, strengthening financial accounting and controls,
enhancing controls over the issuance of visas, integrating other foreign
affairs agencies' functions into the Department, and improving its
strategic and performance planning; (8) State is making progress in
addressing these issues; (9) for example, State is now devoting
substantial resources to developing a strategy to enhance its
information management capacity and security as well as its financial
management systems; (10) State has also completed strategic and annual
performance plans under the Results Act; (11) however, these plans had
their strong points but often fell short on meeting Results Act
requirements; (12) VA has made progress in developing a framework for
managing and evaluating changes in health care service delivery, as
required by the Results Act, however, much more needs to be done to
achieve Results Act requirements; and (13) VA must improve its
management information to help it ensure that veterans have equitable
access to care across the country, that it maintains its capacity to
serve special populations, and that it can meet enrolled veterans'
demand for care.

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

 REPORTNUM:  T-NSIAD/HEHS/AIMD-99-104
     TITLE:  Major Management Challenges and Program Risks: Departments 
             of Defense, State, and Veterans Affairs
      DATE:  02/25/99
   SUBJECT:  Information resources management
             Financial management
             Internal controls
             Computer security
             Risk management
             Strategic planning
             Accountability
IDENTIFIER:  Y2K
             VA Veterans Integrated Service Network
             DOD TRICARE Program
             
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NS99104T.book GAO

United States General Accounting Office

Testimony Before the Subcommittee on National Security, Veterans
Affairs, and International Relations, Committee on Government
Reform, House of Representatives

For Release Expected at 10:00 a.m., EST Thursday, February 25,
1999

MAJOR MANAGEMENT CHALLENGES AND PROGRAM RISKS

Departments of Defense, State, and Veterans Affairs

Statement by Henry L. Hinton, Jr., Assistant Comptroller General,
National Security and International Affairs Division

GAO/T-NSIAD/HEHS/AIMD-99-104

Page 1 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Mr. Chairman and Members of the Subcommittee: We are pleased to be
here today to discuss major management challenges and program
risks confronting the Departments of Defense (DOD), State, and
Veterans Affairs (VA). Our testimony is derived from a special
series of reports we recently issued on this subject entitled
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. As a
companion volume to this series, we have also issued an update to
those government operations and programs that our work has
identified as high risk because of their greater vulnerabilities
to waste, fraud, abuse, and mismanagement.

As requested, our testimony today will focus on (1) the management
challenges DOD, State, and VA must address to improve the
efficiency of their support functions and (2) whether these
departments are meeting performance and accountability goals and
measurements that are required under the Government Performance
and Results Act of 1993.

Results in Brief For each of the three agencies DOD, State, and VA
we have identified and reported management challenges that have
hampered the efficiency of

their support functions in carrying out their missions. To their
credit, each of the agencies has implemented a number of
initiatives to improve their operations, but more remains to be
done. These challenges, many of which have been long- standing in
scope, also underscore the critical role that the principles of
performance- based management, as embraced in the Results Act, can
play in successfully providing the products, services, and results
that taxpayers expect.

For many years, we have reported significant problems at DOD that
cut across many of its program areas. These problems can be
categorized into systemic management challenges, which deal with
issues such as financial management, information management,
weapon systems acquisition, and contract management; and program
management challenges, which deal with issues related to
infrastructure, inventory management, and personnel. DOD has
implemented a number of Departmentwide reform initiatives that are
intended to improve some of its processes along with key business
practices. Despite DOD's military successes, many of DOD's
programs and operations are still vulnerable to fraud, waste,
abuse, and mismanagement, and need improvement. Overcoming these
challenges

Page 2 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

requires DOD to address the underlying causes, such as cultural
barriers and service parochialism, that limit opportunities for
change. To address these problems, DOD must have an effective
overall strategic plan for the agency and all levels of the
organization that includes goals, performance measures, and time
frames for completing corrective actions. The Results Act provides
the framework for resolving high risk and other problems and for
providing greater accountability in DOD's programs and operations.
However, DOD has not fully embraced the underlying principles in
the Results Act.

In our past and ongoing work at State, we have identified a number
of performance and management challenges State faces in carrying
out its mission, such as providing enhanced overseas security,
upgrading its information systems, strengthening financial
accounting and controls, enhancing controls over the issuance of
visas, integrating other foreign affairs agencies' functions into
the Department, and improving its strategic and performance
planning. State is making progress in addressing these issues. For
example, State is now devoting substantial resources to developing
a strategy to enhance its information management capacity and
security as well as its financial management systems. State has
also completed strategic and annual performance plans under the
Results Act. However, these plans had their strong points but
often fell short on meeting Results Act requirements. For example,
State's strategic plan addressed neither the potential impact of
the consolidation of the foreign affairs agencies on its systems
nor the potential for other agencies to have functions duplicative
of State's. State's performance plan revealed similar
deficiencies.

For many years, we have reported significant management problems
at VA. These problems include obsolete infrastructure, poor
monitoring of the effects of health service delivery changes on
patient outcomes, inadequate data, and ineffective management of
non- health- care benefits and management information systems. VA
has made progress in developing a framework for managing and
evaluating changes in health care service delivery, as required by
the Results Act; however, much more needs to be done to achieve
Results Act requirements. For example, VA must continue to set
results- oriented goals for compensating disabled veterans and
develop effective strategies for improving disability claims
processing and vocational rehabilitation. VA must also improve its
management information to help it ensure that veterans have
equitable access to care across the country, that it maintains its
capacity to serve special populations, and that it can meet
enrolled veterans' demand for care.

Page 3 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Challenges Facing the Department of Defense

Managing and overseeing an estimated $1 trillion in assets and
annual budget of over $250 billion, or about one- half of the
government's discretionary funding, is an enormous task. As the
United States begins the new millennium as the world's sole
superpower, it continues to lead the world with superior military
forces. The effectiveness of U. S. forces is well evidenced by
experiences in the Persian Gulf and Bosnia. Also, the DOD has
implemented a number of Departmentwide reform initiatives that are
expected to improve its financial management, information
management, and defense weapon systems acquisition processes and
other key business practices. However, DOD still faces challenges
with many of its key performance and management processes. A
number of these challenges have been included on our high risk
list for many years (see app. I). Successfully addressing these
challenges can yield fiscal dividends that the Department could
use to meet priorities such as readiness and modernization needs.
The challenges DOD faces can be grouped into two categories: (1)
systemic problems with management processes related to plans,
finances, information, acquisition, and contracts and (2) specific
problems related to infrastructure, inventory, and personnel
programs. Summaries of the challenges that need to be addressed
follow.

Systemic Management Challenges

Serious Financial Management Weaknesses Persist

DOD continues to struggle to overcome the many problems brought
about by decades of neglect and to fully institute sound financial
management practices. These problems range from being unable to
properly account for billions of dollars in assets to being unable
to produce reliable and timely information needed to make sound
resource decisions. The most recent audits of DOD's financial
statements for fiscal year 1997 resulted in the identification of
serious deficiencies across the full spectrum of DOD's
recordkeeping and controls systems. For example:

 DOD has not properly accounted for and reported billions of
dollars of property, equipment, inventory, and supplies. Recorded
information on the number and location of several military
equipment items such as F- 4 engines and service craft was not
reliable, on- hand quantities of inventories differed by 23
percent from inventory records at selected major storage
locations, and over $9 billion in known military operating
materials and supplies were not reported.

Page 4 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

 DOD has not estimated and reported on material environmental and
disposal liabilities. While DOD reported nearly $40 billion in
estimated environmental cleanup and disposal liabilities for
fiscal year 1997, its reports excluded costs associated with
military weapon systems or training ranges these undisclosed
liabilities are likely to be an additional tens of billions of
dollars.

To achieve the wide- ranging reforms necessary to address its
long- standing financial management deficiencies, we have made
numerous recommendations to DOD regarding its need to upgrade the
skills of its financial personnel and successfully overcome
serious design flaws in its financial systems. DOD has many well-
intentioned planned and ongoing financial management reform and
improvement efforts, such as an action plan to identify short-
term initiatives to address DOD's financial reporting
deficiencies. However, until DOD deals with these two key issues,
resolution of its financial management problems is unlikely.

Given the seriousness and long- standing nature of these
weaknesses in DOD's financial management operations, we are
continuing to monitor this area as part of our high- risk program.
Taken together, the material deficiencies in DOD's financial
operations represent the single largest obstacle that must be
effectively addressed to obtain an unqualified opinion on the
entire U. S. government's consolidated financial statements. These
weaknesses must be effectively addressed if DOD is to put into
place the disciplined financial practices needed to produce
credible financial information not only for financial statements
but also for support of operational and budgetary decisionmaking
and maintaining effective accountability over DOD's vast
resources.

Information Management and Technology Issues Pose Major Concerns

Information management and technology issues are key DOD
management challenges. We are continuing to designate DOD's
information technology project management efforts as high risk. A
primary short- term concern centers on the implementation of the
Year 2000 conversions of date- sensitive information on DOD's
computer systems. In February 1997, we designated the Year 2000
problems as a governmentwide high- risk area. Another area of
concern is information security for computer systems. Malicious
attacks on these systems are an increasing threat to our nation's
security.

For an organization as large as DOD with over 1.5 million
computers, 28,000 systems, and 10,000 networks- addressing the
Year 2000 problem is a formidable task and progress on the Year
2000 program is slow. In fact,

Page 5 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

the Office of Management and Budget, in its November 15, 1998,
report on federal agencies' progress on Year 2000 conversion, has
placed DOD on its Tier 1 list those agencies where there is
insufficient evidence of adequate progress. DOD has an enormous
effort underway to remediate its mission- critical systems and
ensure that its key operational missions will continue to function
after the century date change. However, that effort is at risk. We
have issued 10 reports and the DOD Inspector General and audit
agencies have issued 130 reports that continue to question the
Department's management of its Year 2000 program. For example:

 The Department lacks reliable, timely information on program
status.  Component reports on systems compliance are often
inaccurate.  Contingency plans (developed in the event of system
failure) are

frequently not executable.  Inconsistent guidance has led to false
starts and uncoordinated efforts.

Another area of major concern is information security. Providing
security over DOD's vast array of networked computers is a major
challenge. DOD's computer systems are particularly susceptible to
attack through connections on the Internet, which Defense uses to
enhance communication and information sharing. The Defense
Information Systems Agency estimated that attacks numbered in the
hundreds of thousands per year and were successful 65 percent of
the time and that the number of attacks was doubling each year.

Reports to DOD have included numerous recommendations related to
specific control weaknesses as well as the need to establish a
defined systems architecture and a comprehensive program for
improved information security management. Based on our
recommendations and legislative requirements DOD is taking a
variety of steps to (1) develop a plan for evaluating, in an
operational environment, Year 2000 compliance and (2) establish
the Departmentwide Information Assurance Program to improve and
better coordinate the information security- related activities of
the military services and other DOD components. A sustained effort
will be needed to ensure that these efforts are successful.

Weapon Systems Acquisition Problems Persist

Effectively managing the weapon systems acquisition process
continues to be a concern for DOD. Although DOD has increased its
procurement budget, it consistently pays more and takes longer
than planned to develop systems that do not perform as
anticipated. DOD spends about $85 billion annually to research,
develop, and acquire weapon systems. Although

Page 6 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

DOD has many acquisition reform initiatives in process, pervasive
problems persist regarding

 Questionable requirements and solutions that are not the most
cost- effective available. For example, DOD could have met its
strategic airlift requirements and achieved a significant life-
cycle cost savings by buying fewer C- 17s than planned.

 Unrealistic cost, schedule, and performance estimates. For
example, in restructuring the F- 22 program, it is doubtful that
the Air Force can offset the $13- billion projected increase in
production costs because many of the cost- cutting initiatives it
identified were not well defined.

 Questionable program affordability. DOD tends to overestimate
funding that would be available in the future, and underestimate
program costs, resulting in the advent of more programs than could
be executed as planned. For example, in analyzing the 1998 Future
Years Defense Program, we found that funding for infrastructure
activities was projected to increase, while procurement funding
was projected to be lower than anticipated.

 The use of high- risk acquisition strategies. Acquisition
strategies such as the acquisition of weapons based on optimistic
assumptions about the maturity and availability of enabling
technologies were being based on the need to meet the threat and
to reduce acquisition costs. For example, DOD's approval of the
Joint Surveillance Target Attack Radar System's full- rate
production was premature and risky because the system's
operational effectiveness and suitability for combat were not yet
demonstrated and plans to address deficiencies and reduce program
costs were not completed.

Acquisition reforms under way by DOD have a sound basis and have
the potential for improving the outcomes of weapon systems.
Acquisition reforms and commercial practices can help produce
better outcomes on DOD acquisitions if they help a program succeed
in its environment.

Improved Processes and Controls Key to Reducing Contract Risk

DOD spends over $100 billion a year contracting for goods and
services. Since 1995, we have reported DOD contract management as
a high- risk area. Over the last few years, DOD has made several
broad- based changes to its acquisition and contracting processes
to improve DOD- contractor relationships and rules. DOD has given
attention to acquisition reform initiatives, but we continue to
identify risks in DOD's contracting activity,

Page 7 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

including areas such as erroneous, fraudulent, and improper
payments to contractors; payment of higher prices for commercial
spare parts than necessary; and the award and administration of
DOD health care contracts.

The need for DOD to achieve effective control over its payment
process remains an imperative. DOD receives about a billion
dollars a year in checks from defense contractors. While some of
these are the results of contract changes that result in reduced
prices, others represent errors by DOD's payment center. DOD is
considering the use of private contractors, through a process
known as recovery auditing, to identify overpayments. In addition
to erroneous payments, weak systems and internal controls can
leave DOD vulnerable to fraud and improper payments. Our September
1998 report discussed two cases of fraud that resulted from a weak
internal control environment. 1 In one instance, the lack of
segregation of duties and other control weaknesses provided
Defense Finance and Accounting Service employees a level of access
to the vendor payment system that allowed them to enter contract
and payment information and remittance addresses needed to create
payment vouchers. No one individual should control all key aspects
of a transaction or event without appropriate compensating
controls.

In recent years, DOD has significantly changed the way it acquires
goods and services by removing what were considered barriers to
efficient and effective use of the commercial marketplace. A major
focus of these changes is the adoption of commercial buying
practices. We and the DOD IG have found that DOD needs to
strengthen the quality of its price analyses. For example, the IG
found that DOD had not formulated good procurement and management
strategies for commercial parts in the acquisition reform
environment. As a result, DOD was paying higher prices for
commercial spare parts than necessary.

DOD's implementation of health care management programs,
particularly the TRICARE Program, further illustrates DOD's
difficulty in managing contracts. TRICARE was established during a
period of military downsizing and budget concerns to contain costs
and maintain access to and the quality of health care for DOD's
8.2 million beneficiaries. However, TRICARE's implementation,
entailing the award of seven competitively bid, 5- year contracts,
has been fraught with problems. All seven contracts,


1 Financial Management: Improvement Needed in Air Force Vendor Payments Systems and Controls (

GAO/AIMD-98-274
, Sept. 28, 1998).
1 Financial Management: Improvement Needed in Air Force Vendor
Payments Systems and Controls (  GAO/AIMD-98-274 , Sept. 28,
1998).

Page 8 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

totaling about $15 billion, were protested. As a result, DOD and
the competitors incurred added costs, and the program was
significantly delayed. Three of the protests were sustained,
resulting in further delays.

While DOD is taking steps to improve its payment process and
controls, it will likely take an extended period of time to get
its payment problems under control. Similarly, DOD is taking steps
to simplify its procurement approach for health care contracts.
Whether DOD can successfully develop and launch the new method,
and whether what it designs will reduce the current volume of
contract changes or control health care costs remains to be seen.

Program Management Challenges

Defense Infrastructure Can Be Better Streamlined

Although DOD has substantially downsized its force structure over
the past 7 to 10 years, it has not reduced operations and support
costs commensurately because the services are reluctant to
consolidate activities that span service lines and reduce capacity
as necessary. DOD has found that infrastructure reductions are
difficult and painful because achieving significant cost savings
requires up- front investments, the closure of installations, and
the elimination of military and civilian jobs. Further, DOD's
ability to reduce infrastructure has been affected by service
parochialism, a cultural resistance to change, and congressional
and public concern about the effects and impartiality of
decisions. For fiscal year 1998, DOD estimated that about $147
billion, or 58 percent of its budget, would still be needed for
infrastructure requirements, which included installation support,
training, medical care, logistics, force management, acquisition
infrastructure, and personnel.

The Secretary of Defense's November 1997 Defense Reform Initiative
Report emphasizes the need to reduce excess Cold War
infrastructure to free up resources for force modernization.
Initiatives included privatizing military housing and utility
systems, emphasizing demolition of excess buildings, and
consolidating and regionalizing many defense support agencies. The
Secretary noted that DOD continued to be weighed down by
facilities that are too extensive for its needs, more expensive to
maintain than it can afford, and detrimental to the efficiency and
effectiveness of the nation's armed forces. Likewise, he noted
that DOD must do a better job of managing facility assets on its
remaining bases. The Defense Reform

Page 9 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Initiatives are steps in the right direction, but collectively
they do not provide a comprehensive long- range plan for
facilities infrastructure. We have cited the need for such a plan
but have noted that DOD's past plans were not focused on long-
term comprehensive strategies for facilities revitalization,
replacement, and maintenance and were not tied to measurable goals
to be accomplished over specified time frames or linked to
funding. The Results Act underscores the need for improved
planning for facilities infrastructure. Improved infrastructure
planning can help agency components and programs to develop
outcome- oriented goals and performance measures that are linked
to and support agencywide goals.

In February 1997, we identified defense infrastructure as a high-
risk area, and it remains on our high- risk list. We have
identified numerous areas in which infrastructure activities can
be eliminated, streamlined or reengineered to be made more
efficient in the following areas: acquisition infrastructure,
central logistics, installation support, central training, force
management, and medical facilities and services.

Inventory Management Problems Persist in DOD

DOD's inventory management practices continue to be ineffective
and inefficient. As a result, DOD spends more than necessary to
procure inventory, yet items are not available when needed. In
1990, we identified DOD's management of secondary inventories
(spare and repair parts, clothing, medical supplies, and other
items to support the operating forces) as a high- risk area
because levels of inventory were too high and management systems
and procedures were ineffective.

DOD has had inventory management problems for decades. Some
examples of DOD's problems follow:

 Adequate inventory oversight has yet to be achieved. In 1995, we
reported that DOD's strategic plans for logistics called for
improving asset visibility in such areas as in- transit assets,
retail level stocks, and automated systems. DOD will not
completely implement its current plan until 2004.  DOD has not
taken sufficient steps to ensure the accuracy of inventory

requirements to preclude the acquisition of unneeded items. For
example, the Navy could have eliminated about $13 million of
planned program requirements for 68 of 200 items we reviewed
because the requirements were also included in the reorder- level
requirement.

Recently, the Congress enacted legislation requiring the Defense
Logistics Agency and the services to develop and submit schedules
for implementing

Page 10 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

best commercial practices in the acquisition and distribution of
inventory items. DOD recognizes potential opportunities in
adopting best practices. DOD seeks to reengineer its support
activities and business practices by incorporating many business
practices that the private sector companies have used to become
leaner, more agile, and highly successful. Since 1991, we have
issued 11 reports that identify significant opportunities for DOD
to test and adopt, where feasible, best inventory management
practices used in the private sector to improve logistics
operations and lower costs.

Military Personnel Issues Need Attention

DOD's personnel programs to recruit, train, and retain a high-
quality active- duty enlisted workforce have not received the
management attention needed to ensure their successful operation.
The military services recruit tens of thousands of new enlistees
each year who fail to complete their contracts.

Our body of work in this area indicates that DOD faces an
especially significant challenge in retaining the hundreds of
thousands of new recruits it enlists each year. While each new
enlistee signs a contract ranging from 2 to 6 years, most first-
term contracts are for 4 years. Despite this contractual
obligation, we found that between fiscal year 1982 and 1993, 31.7
percent of all enlistees did not complete their first terms of
service. First- term attrition is costly: DOD estimates that the
services' recruiting and training investment in each enlistee
during the first term is an average of $35,532. For fiscal year
1993 we calculated that the services spent $1.3 billion on the
72,670 enlistees who entered the services in fiscal year 1993 and
departed prematurely. Enlistees were separated because of
inadequate screening prior to enlistment; ineffective service
procedures for selecting the best candidates for recruiting duty;
and enlistee misconduct, medical conditions, performance problems,
drug use, pregnancy and parenthood.

We have made a number of recommendations to which DOD is now
responding. It has formed a joint service working group and agreed
to prepare a report by October 1999 documenting service
initiatives to reduce attrition. Examining the roles of all
persons involved in recruiting and retaining enlistees is in
keeping with the intent of the Results Act, which requires
agencies to clearly define their missions, to set goals, and to
link activities and resources to those goals. Recruiting and
retaining wellqualified military personnel are among the goals
included in DOD's strategic plan required under the Act.

Page 11 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Addressing the Challenges in DOD

To address the management and performance problems we have cited,
DOD has taken actions in the high risk and other areas and has
made progress in improving some of them. DOD has had some success
in addressing its inventory management problems, is working to
reform its weapon systems acquisition process, has recognized the
need for infrastructure reductions, and has identified initiatives
to reduce attrition of military personnel. For example, in May
1997, the Secretary of Defense issued the Report of the
Quadrennial Defense Review, which examines America's defense needs
from 1997 to 2015, including issuing a blueprint for a strategy-
based, balanced, and affordable defense program. In addition,
DOD's latest efforts to reform operations and processes are
contained in the Secretary's DRI Report, in which DOD proposed to
revolutionize its business and support operations by identifying
and adopting best business practices from the private sector.

Despite DOD's military successes, many of its programs and
operations are still vulnerable to fraud, waste, and abuse, and
mismanagement, and need improvement. To meet these challenges, DOD
must address their underlying causes, such as cultural barriers
and service parochialisms. DOD must have an effective overall
strategic plan that includes goals, performance measures, and time
frames for completing corrective actions. In our view, the Results
Act provides the framework for resolving high risk and other
problems and for providing greater accountability in DOD's
programs and operations.

DOD, however, has not fully embraced the underlying principles in
the Results Act. The Secretary of Defense has stated that the May
1997 Quadrennial Defense Review will serve as DOD's overall
strategic planning document and is intended to fulfill the
requirements of the Results Act. Our review of DOD's strategic
plan and its February 1998 performance plan disclosed many areas
where improvements could be made. The principal shortcomings in
DOD's plan center on weaknesses in (1) establishing results-
oriented performance goals with explicit strategies and time
frames for achieving them and (2) addressing what DOD has done or
plans to do to resolve its persistent management problems. In our
opinion, DOD needs to work closely with the Congress now to
develop performance goals and measures. Addressing these areas
would provide congressional decisionmakers and DOD the information
necessary to ensure that DOD's plans are well thought out for
resolving ongoing problems, achieving its goals and objectives,
and becoming more results oriented, as expected by the Results
Act.

Page 12 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Challenges Facing the Department of State

As the lead agency for the conduct of foreign affairs, State has
enormous responsibilities as it works to shape a more secure,
prosperous, and democratic world for the benefit of the American
people. A substantial amount of State's nearly $2.7 billion annual
budget for the administration of foreign affairs is spent on what
could be called "business" functions that support its broad
mission. The Department has a worldwide network of operations to
maintain its headquarters and more than 250 overseas posts, as
well as about 35 other U. S. agencies that operate overseas. State
provides security for thousands of U. S. personnel and facilities
abroad. In addition, State operates a network of communications
facilities around the globe that are critical to its foreign
affairs mission.

In carrying out its important mission, State faces a number of
significant management challenges that, if not met, could affect
its ability to function effectively in the 21st century. These
challenges are not simple: they cover a wide spectrum of State
operations and responsibilities around the world. Key among these
challenges are issues State faces in enhancing overseas security,
improving its information and financial management systems,
integrating other foreign affairs agencies' functions into the
Department, enhancing the controls over the issuance of visas, and
improving its strategic and performance planning.

Enhancing the Management of Security Programs for Overseas
Personnel and Property

The need to adequately protect employees and their families
overseas may very well be the single most important management
issue currently facing the State Department. The acts of terrorism
in Kenya and Tanzania claimed more than 260 lives and injured
thousands in August 1998. Worldwide, several embassies found
themselves either shut down or unable to provide normal services
because of threatening situations. The monetary requirements for
undertaking security enhancements will be significant, as will the
management and technological challenges. State received $1.45
billion in emergency funding to rebuild the embassies in Kenya and
Tanzania, relocate other embassies, and improve security for other
facilities serving U. S. personnel worldwide. State reports that
it has completed security surveys of over 200 posts and formulated
six internal working groups to direct and track program
implementation. One initiative will require the accounting system
to accumulate spending data on areas such as equipment acquisition
and construction.

State is also assessing its longer term security enhancement
needs, and estimates that several billion dollars may be needed
for additional embassy

Page 13 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

construction. A key issue facing State is whether it will have the
capacity to implement a major security construction program. In
the early 1990s, we reported that State encountered several
management problems in using the $1.47 billion in funds that were
applied to the diplomatic security construction program during
fiscal years 1986- 1995. These management problems were related to
inadequate staffing, poor program planning, difficulties in site
acquisition, changes in security requirements, and inadequate
contractor performance. All of these directly contributed to
significant delays and cost increases in the majority of State's
construction projects. For example, inadequate coordination within
State in determining building requirements contributed to millions
of dollars in cost increases in a project in Pretoria, South
Africa. A lack of agreement within State on potential building
sites delayed projects in Bogota, Colombia, and Tunis, Tunisia for
several years and substantially increased costs. State has since
undertaken a number of efforts to improve construction programs.
Nevertheless, the scope of the problems encountered indicated that
State had systemic weaknesses in its program management.

In view of State's prior experiences and difficulties in
implementing the security construction program, several questions
and issues need to be addressed as part of today's efforts to
formulate strategies for enhancing security.

 What would be the total costs to bring overseas posts into
compliance with current security standards?  What actions would
State need to take to ensure it has the management

capability to implement a large- scale construction program?  Are
there adequate control mechanisms to ensure efficient and
effective

use of emergency funds and any subsequent funding for overseas
security?

One issue that should be considered in addressing future security
requirements is the sheer number of U. S. employees overseas. The
security burden is directly associated with the size of the
overseas work force. In our work on overseas staffing issues in
the mid- 1990s, we noted that the U. S. government (excluding
military operational commands) employed a total of nearly 38,000
personnel overseas-- split evenly between U. S. direct hire
employees and foreign national employees. An important trend has
been the increase in the number of overseas U. S. direct hires by
the nonforeign- affairs agencies. A broad examination of how the
U. S. government carries out its overseas role and related
missions may now be needed in view of the increased security
threats. State needs to take the lead in

Page 14 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

working with other agencies operating overseas to examine their
overseas staffing requirements and explore alternatives to
reducing the number of U. S. employees overseas.

Improving Information and Financial Management Systems

State's information resource management infrastructure has
historically been inadequate to support the Department's core
foreign policy and administrative functions. We have reported that
State relied on outdated and unsecured information and financial
management systems that are vulnerable to Year 2000 problems and
security breaches. State estimated in 1997 that it would need $2.7
billion over 5 years to achieve a modernized global
infrastructure. However, this estimate was not prepared through
the rigorous analytical process called for in federal guidance
designed to control costs and improve efficiency. State has since
taken steps to improve its information security and adopted an
improved approach to addressing its Year 2000 problems. It has
also begun to incorporate a comprehensive capital planning and
investment process into its information technology investments.
However, State needs to ensure that it remediates on a timely
basis its mission- critical systems. The Office of Management and
Budget has designated State as a Tier 1 agency in its assessment
of agencies' Year 2000 progress, that is, State demonstrated
insufficient evidence of progress in dealing with this problem.

In the financial management area, State received, for the first
time, an unqualified opinion on its fiscal year 1997 financial
statements. This achievement provides State with a foundation from
which it can move toward being able to more routinely produce the
timely and reliable financial information that is critical to
making sound decisions that promote effective and efficient use of
federal funds. To reach this goal, State needs to continue to
bring its systems into full compliance with federal accounting and
information management requirements. State also must work on
solving related material internal control weaknesses if it is to
adequately protect its assets and have timely, reliable data for
cost- based decision- making, reporting, and performance
management.

Effectively Reorganizing Foreign Affairs Agencies

The long- planned reorganization of the government's foreign
affairs agencies is under way. In April 1997, the White House
announced a plan to put matters of international arms control, U.
S. Information Agency's (USIA) public diplomacy, and other
functions within a "reinvented" State Department. In October 1998,
the Congress authorized the reorganization, which abolished the
USIA and the Arms Control and Disarmament Agency

Page 15 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

(ACDA) and consolidated and integrated those functions into State.
The reorganization is intended to reinvigorate the foreign affairs
functions of the United States within the State Department. About
3,000 employees of ACDA and USIA will be integrated into State.
Potential areas identified for integration among the three
agencies include legal affairs, congressional liaison, press and
public affairs, and management. Central management functions that
are to be integrated include IRM, overseas facilities and
operations, logistics, diplomatic security, financial management,
and human resources. In December 1998, State submitted a report to
the Congress describing its reorganization strategy.

State has indicated that during the transition, costs would likely
increase because of the need to implement system conversions and
transfers; in the longer term, overall staffing and costs may
decrease. State faces several challenges in achieving the
objectives of this reorganization. One major challenge is the
technological difficulty of uniting the agencies, including
integrating separate electronic mail and computer systems. Overall
issues include whether the reorganization will actually produce
identifiable efficiencies and improved performance in foreign
affairs programming. As our prior work has indicated, many of the
areas targeted for management consolidation need substantial
reform.

Effectively Managing the Visa Process

The Immigration and Naturalization Service (INS) estimated that as
of October 1996, 5 million illegal aliens were residing in the
United States. While not the primary source of illegal
immigration, visa fraud is a significant matter of concern.
State's consular officers at overseas posts are responsible for
providing expeditious visa processing for qualified applicants. At
the same time, they must prevent the entry of those who are a
danger to U. S. security interests or are likely to remain in the
United States illegally. In fiscal year 1997, over 7 million
aliens applied for nonimmigrant visas, and 640,000 foreigners
immigrated to the United States. Visa processing is a particular
problem for some overseas locations where volume and/ or security
concerns are high.

State has introduced new technologies, equipment, and controls
designed to improve visa processing and reduce the incidence of
fraud. State notes that progress has been made in several areas,
including installation of machine- readable visa systems at all
visa- issuing posts, online connectivity to Washington, D. C.,
data bases, and implementation of a first phase of a State- INS
data- share program. Many improvements were made possible through
State's temporary authority to retain fees charged foreigners

Page 16 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

applying for nonimmigrant visas. Those fees generated millions of
dollars, enabling the Department of State to invest in border
security technology and to pay the salaries of nearly 2,000
employees.

State will need to remain vigilant in a number of areas to further
reduce the vulnerability of the visa system to fraud and abuse.
These issues include (1) critical staffing gaps in overseas
consular positions; (2) limitations in consular automated systems;
(3) restrictions in the exchange of intelligence information with
INS and other law enforcement agencies; and (4) weaknesses in the
integrity of immigrant and nonimmigrant documentation, including
the computerized systems used to produce them. The Department must
also continue its efforts to encourage consular sections to
implement best practices designed to streamline and rationalize
the visa workload. Potential best practices include using travel
agents for initial processing, establishing appointment systems to
control workload, and allowing the payment of visa fees at a bank
or other financial institution. In view of the increased
international terrorist threats, continued attention to State's
progress in addressing these issues will be needed.

Strengthening Strategic and Performance Planning at State

State needs to strengthen its strategic and performance planning
as part of its overall efforts to improve management. In its first
strategic plan for foreign affairs, State formulated 16 foreign
policy goals that cover a wide spectrum of U. S. national
interests-- national security, economic prosperity, American
citizens and U. S. borders, law enforcement, democracy,
humanitarian response, and global issues. Our review of that plan
and the Department's annual performance plan for 1999 indicated
that State's plans had their strong points but often fell short of
meeting the requirements of the Results Act.

One area of concern was that State's strategic plan addressed
neither the potential impact of the consolidation of the foreign
affairs agencies on its systems nor the potential for other
agencies to have functions duplicative of State's. We have found
that State's functional bureaus share responsibility with multiple
U. S. agencies on various overlapping issues, including trade and
export policy and international security functions. The strategic
plan also did not address the serious deficiencies in State's
financial accounting and information systems, noting only in
general terms that several years will be required to develop
performance measures and related data bases to provide sufficient
information on the achievement of goals.

Page 17 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Our review of State's performance plan revealed similar
deficiencies but also some encouraging points as well. For
example, State's performance plan generally provided clear and
reasonable strategies and goals in the areas of improving U. S.
citizens' services and border security, and promoting democracy.
In contrast, State's plan did not present a clear picture of its
methods to meet strategic and performance goals in the areas of
furthering economic prosperity, preventing international crime,
and enhancing humanitarian assistance. Overall, the performance
plan did not clearly indicate the Department's intended
performance and was vague about how State will coordinate with
other agencies. Further, State's performance plan did not provide
sufficient confidence that the Department's performance
information will be credible. It did not address how the known
deficiencies in State's financial and accounting and information
systems will affect performance measurement. In response to our
work, State is attempting to improve its planning by developing
clearer and more objective performance measures linked to
performance goals and identifying partnerships with other agencies
or governments to address crosscutting issues.

State's initiatives have also received top- level management
support in recent months as evidenced by the appointment of a
permanent Chief Information Officer (CIO), and a deputy CIO for
architecture and planning, the creation of a Deputy CIO position
for the Year 2000 issue, and the assignment of information system
security issues to the Deputy CIO for Operations.

Challenges Facing the Department of Veterans Affairs

The Department of Veterans Affairs (VA) is responsible for
administering benefits and services that affect the lives of more
than 25 million veterans and approximately 44 million members of
their families. Through its budget-- approximately $43 billion in
fiscal year 1999-- VA provides an array of health care benefits;
non- health- care benefits, such as compensation and pension; and
other supporting programs. Over 200,000 VA employees deliver these
services from more than 1,000 facilities.

As required by the Results Act, VA submitted a strategic plan for
fiscal years 1998 to 2003. In this plan, VA developed strategic
goals covering all its major programs and included objectives,
strategies, and performance goals to support its strategic goals.
VA has made significant progress in developing a framework for
managing and evaluating changes in service delivery. However,
there are several management challenges VA must

Page 18 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

overcome to meet its strategic goals of efficiently and
effectively delivering services to veterans and their families.
These challenges include:

 an infrastructure that does not meet current and future needs,
inability to ensure that veterans have access to needed health
care

services,  lack of outcome measures to assess the effects of
managed care

initiatives,  ineffective management of non- health- care benefits
programs, and  ineffective management of information systems.

VA Health Care Infrastructure Does Not Meet Current and Future
Needs

Because of their age and recent changes in the way VA delivers
health care, many of VA's facilities are no longer adequate for
the way VA delivers health care services today and plans to
deliver services in the future. For example, most VA facilities
were constructed as hospitals with an array of bed sections,
treatment rooms, surgical suites, and other accommodations and
equipment for treating an inpatient population and are often
poorly suited for delivering care to an ambulatory population on
an outpatient basis. Although changing care practices and
efficiency initiatives, such as emphasizing outpatient care and
facility integration, have allowed VA to eliminate approximately
half of its 52,000 acute- care hospital beds since 1994, excess
capacity remains. Furthermore, the veteran population is
declining: VA projects that the number of veterans in the country
will drop about 21 percent from 1997 to 2010. We have reported
that if past efficiency trends and demographic projections are
realized, VA will need only about 10,000 of its current 26,000
acute- care beds to meet veterans' health care needs in 2010. VA
will likely need to close some facilities, but it also must plan
for the needs of the increasingly older veteran population. As the
nation's World War II and Korean War veteran populations age,
their health care needs are shifting from acute hospital care to
nursing home and other long- term care services. For example, the
number of veterans aged 85 and older is projected to increase to
about 1.3 million in 2010, a fourfold increase from 1995.

The continued need for some VA facilities may be affected by the
expanded authority to contract for health care services that the
Congress provided VA in 1996. Under this authority, VA can
contract with public or private providers, who can provide care at
lower cost or care that VA does not offer in a particular
geographic location. To the extent that VA uses this authority, it
may create additional excess capacity in existing facilities.

Page 19 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Integrating various clinical and support operations across some of
its facilities is an important tool VA is using to meet current
and future needs. Integrations are also intended to enhance the
efficiency and effectiveness of VA's health care delivery system
by reducing unnecessary duplication of services. We have reported
that the 23 facility integrations involving 48 health care
facilities that have been completed or are under way will produce
millions of dollars in savings that can be used to enhance
veterans' health care. However, VA could do more. We have reported
that consolidating services from four to three locations in the
Chicago area could save $6 million to $27 million in future
renovation costs. Although VA has recently developed a guidebook
for planners to use in developing, implementing, and evaluating
potential facility integrations, VA needs to apply this framework
and evaluate its effectiveness in saving resources for both the
short and the long term.

VA's restructuring efforts, particularly integrating
administrative and clinical services across two or more medical
centers, are complicated by affiliation agreements that VA
facilities have with medical schools. Since VA's medical education
program began in 1946, 130 VA medical centers have affiliated with
105 medical schools to provide training opportunities for medical
students and residents. Transforming VA's health care delivery
system from an inpatient to an outpatient focus, increasing
reliance on primary care, and integrating services in fewer
hospitals are all causing VA and medical schools to rethink their
affiliation arrangements.

Restructuring efforts will also affect VA's support of the
nation's medical needs during national emergencies. Since 1982, VA
has served as the primary medical system backup to DOD. VA also
works with the Federal Emergency Management Agency and the
National Disaster Medical System during national emergencies. The
integration of facilities' administrative functions, the
consolidation of medical services in fewer VA locations, and VA's
reduced reliance on providing specialized care may alter the way
VA is able to support DOD and the federal emergency and disaster
systems. However, VA has not specified how it will maintain its
emergency backup functions in light of restructuring.

VA Is Unable to Ensure That Veterans Have Access to Needed Health
Care Services

Because VA lacks accurate, reliable, and consistent information on
how resources are being allocated, it cannot ensure that veterans
who have similar economic status and eligibility priority have
similar access to care regardless of the region of the country in
which they live, as required by the Congress. In fiscal year 1997,
VA introduced a new resource allocation

Page 20 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

system to begin to correct historical inequities in allocating
resources, with the intent of improving the equity of veterans'
access to care. Instead of allocating resources directly to
medical centers on the basis of their budget for the previous
year, VA now allocates funds to its 22 Veterans Integrated Service
Networks (VISNs) based on the number of veterans each VISN has
served. VISNs, in turn, allocate resources to the facilities in
their geographic area. We have reported that while the new method
has indeed improved the equity of resource distribution among
VISNs, VA does not know if it is making progress in providing
similar services to similarly situated veterans. VA's strategic
plan does not include a goal for achieving equitable access, nor
does VA monitor the extent to which equitable access is being
achieved among or within VISNs.

Furthermore, VA has not been able to provide the necessary data to
assure that it maintains its level of certain high- cost,
specialized services, as required by the Congress. We have
reported that much more information and analyses are needed to
support VA's conclusion that it is maintaining its national
capacity to treat special disability groups, including the four
the Congress identified -- spinal cord dysfunction, blindness,
amputation, and mental illness -- in the face of the many
initiatives to become a more efficient provider of care.

VA has not developed information to help ensure that it meets the
likely increased demand for care generated by its new process for
enrolling veterans in its health care system. As a result, VA's
success in enrolling veterans may jeopardize the availability of
care for some veterans. As part of its 1996 eligibility reform
legislation, the Congress required VA to develop a priority- based
enrollment system to allow VA to better manage access while
operating within its budgetary limits. VA has determined that in
fiscal year 1999 it will enroll all priorities and categories of
veterans and serve each veteran who enrolls. Because enrolled
veterans are eligible for all needed hospital and medical care
from VA regardless of their priority category, access to care for
higher- priority veterans may be jeopardized as medical centers
provide care to all enrollees, including high income veterans
without service- connected conditions.

VA Lacks Outcome Measures to Assess the Effects of Managed Care
Initiatives

Responsibility for monitoring quality assurance shifted several
times in the last few years among headquarters and VISN offices,
and VA's Inspector General and veterans' service organizations
raised concerns that VA had weakened its quality assurance efforts
with some of these shifts. In response, in fiscal year 1998, VA
realigned the Office of Performance and

Page 21 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Quality to report directly to the Under Secretary for Health. The
realignment has the potential to improve VA's quality assurance
efforts because this office is situated to more readily identify
emerging challenges across the health care system, implement and
oversee local and national corrective actions when needed, and
help create the single standard of care required by accrediting
agencies.

VA has made little progress in developing, implementing, and
evaluating results- oriented outcome measures to assess the health
status of veterans. Instead, VA's efforts to determine how well it
delivers health care have relied primarily on process- oriented
performance measures. For example, in its performance plan, VA
identifies performance measures such as the number of beds in use,
the number of patients served, and the number of patients
receiving certain diagnostic tests. Although these measures can
provide useful information on progress toward meeting managed care
goals, they provide little information on the specific impact of
changes on the health status of veterans.

Moreover, VA has generally not performed the program evaluations
necessary to determine whether its performance measures are the
most appropriate or sensitive measures for assessing responses to
treatment and changes in health outcomes. The need for such
measures is critical, given the multitude of changes in delivering
care that VA has introduced over the last few years. Indeed, the
need is exacerbated by the flexibility VISNs and medical centers
have in choosing how they deliver care in VA's decentralized
management structure. VA recognizes that it needs to ensure that
the changes made to improve its efficiency and effectiveness do
not unintentionally compromise the health status of veterans. VA
is not alone in its need to design, implement, and evaluate health
outcome measures. Other public and private providers have
recognized the necessity-- and the difficulty-- of creating such
criteria and instruments.

VA's challenges in assessing outcomes are further complicated by
poor data. We and others have reported numerous concerns with VA's
outcome data. These concerns, which are similar to those with VA's
access data, include inconsistent, incompatible, and inaccurate
databases; changes in data definitions over time; and lack of
timely and useful reporting of information to medical center,
VISN, and national program managers.

Page 22 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

VA Faces Major Challenges in Managing Non- Health- Care Benefits
Programs

The non- health- care benefits which VA provides include
disability payments, compensation, pension, housing credit
assistance, and vocational rehabilitation assistance programs. We
have reported that VA's current disability rating schedule does
not reflect the economic loss experienced by veterans today and
may not be equitably distributing disability compensation funds.
In the late 1960s, VA conducted a study of the 1945 version of its
disability rating schedule which concluded that at least some
disability ratings in the schedule did not accurately reflect the
average impairment in earning capacity among disabled veterans and
needed to be adjusted. While VA has done little to ensure that the
schedule's assessments of the economic loss associated with
service- connected conditions are accurate, successful
implementation of the revised rating scale would likely require
congressional action.

In addition, a 1996 Congressional Budget Office report, found that
VA was paying about 230,000 veterans about $1.1 billion in
disability compensation payments annually for diseases or injuries
neither caused nor aggravated by military service. VA regulations
provide that a disease or injury resulting in disability is
considered service- connected if it was incurred during a
veteran's military tour of duty or, if incurred before the veteran
entered service, was aggravated by service. No causal connection
is required between the circumstances of the disability and
official military duty. As a result, veterans can receive
compensation for diseases related to heredity or life style, such
as heart disease and diabetes, rather than military service, thus
calling into question the fairness of VA's treatment of veterans
who were disabled because of their service.

In another area of concern, the National Academy of Public
Administration reported, in 1997, that the timeliness and quality
of adjudication decisions and slow appellate decisions continued
to be a major challenge in VA's compensation and pension program.
VA reported in fiscal year 1997 that it took an average of 133
days to complete the processing of a veteran's original disability
compensation claim. While this is substantially faster than the
average of 213 days required in fiscal year 1994, VA's goal is to
reduce the average to 53 days in fiscal year 2002. In September
1998, VA's OIG reported on its audit of three key compensation and
pension claims processing performance measures. The OIG found that
the performance measures lacked integrity because the compensation
and pension program's automated information system was vulnerable
both to reporting errors and to manipulation of data by regional
offices to show better performance than was actually achieved.

Page 23 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Other areas of concern are VA's Housing Credit Assistance and
Vocational Rehabilitation programs. VA's Annual Accountability
Report, Fiscal Year 1997, described several deficiencies that
contributed to VA's receiving a qualified opinion. Among the areas
of concern was the level of control and accountability over the
direct loan and loan sale activities. The auditors were unable to
conclude that the $3 billion loans receivable account balance was
accurate because of inadequate controls and incomplete records. In
addition, the auditors identified a number of errors, including
inaccurate recording of loan sales transactions and improper
accounting for loan guarantees.

VA's vocational rehabilitation program continues to place few
disabled veterans in jobs. Our 1996 review of records of about
74,000 applicants for vocational rehabilitation between October
1991 and September 1995, who were classified by VA as eligible for
assistance, showed that only 8 percent had completed the
vocational rehabilitation process by finding a suitable job and
holding it for at least 60 days. VA is implementing a number of
initiatives to address its compensation and pension claims
processing and vocational rehabilitation performance weaknesses,
including establishing performance measures for processing times
and unit costs, initiating quality assurance efforts, and
reassessing its business process reengineering.

VA Needs to Manage Its Information Systems More Effectively

VA has made progress in addressing its Year 2000 challenges but
still has a number of associated issues to address. For example,
VA faces significant information systems challenges. It does not
know the full extent of its Year 2000 challenges and could face
widespread computer system failures at the turn of the century if
its systems cannot adequately distinguish the year 2000 from the
year 1900. Thus, veterans who are due to receive benefits and
medical care could appear ineligible.

In addition, VA has not established effective controls to prevent
individuals, both internal and external, from gaining unauthorized
access to VA systems. VA's access control weaknesses are
compounded by ineffective procedures for monitoring and overseeing
systems designed to call attention to unusual or suspicious access
activities. VA also does not have a comprehensive computer
security planning and management program. If these control
weaknesses are not corrected, VA operations, such as financial
management, health care delivery, benefit payments, life insurance
services, and home mortgage loan guarantees-- and the assets
associated with these operations-- are at risk of misuse and
disruption.

Page 24 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Furthermore, VA has not yet institutionalized a disciplined
process for selecting, controlling, and evaluating information
technology investments, as required by the Clinger- Cohen Act.
Information technology accounted for approximately $1 billion of
VA's fiscal year 1999 budget request of $43 billion. At the time
of the budget request, VA decisionmakers did not have current and
complete information, such as cost, benefit, schedule, risk, and
performance data at the project level, which is essential to
making sound investment decisions. In addition, VA's process for
controlling and evaluating its investment portfolio has
deficiencies in in- process and post- implementation reviews.
Consequently, VA does not know whether it is making the right
investments, how to control these investments effectively, or
whether these investments have provided mission- related benefits
in excess of their costs. VA has concurred with most of the
recommendations we have made to address information systems
management issues, and has taken actions to implement many of
them.

Summary To address the management and performance problems we have
cited, DOD, State, and VA have taken actions in the high risk and
other areas and

have made progress improving some of them. For example, DOD has
had some success in addressing inventory management problems, is
working to reform its weapon systems acquisition process, and has
recognized the need for infrastructure reductions. Although past
and current efforts have resulted in progress in improving their
operations, long- standing problems still exist. To address these
problems, these agencies must have an effective overall strategic
plan and performance plans that, among other things, include
goals, performance measures, and time frames for completing the
corrective actions. The Results Act provides the framework for
resolving high risk and other programs and for providing greater
accountability in agencies' programs and operations. In our
opinion, agencies such as DOD, State, and VA need to work closely
with the Congress now to develop performance goals and measures.
Addressing these areas would provide congressional decisionmakers
and individual agencies the information necessary to ensure that
plans are well thought out for resolving ongoing problems,
achieving its goals and objectives, and becoming more results
oriented, as expected by the Results Act.

Mr. Chairman, this concludes our statement. We would be happy to
answer any questions you or the members of the Subcommittee may
have.

Page 25 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Page 26 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Page 27 GAO/ T- NSIAD/ HEHS/ AIMD- 99- 104

Appendix I Department of Defense High- Risk Designations Append i
x I

High- Risk Area Year Designated as High Risk

Inventory Management 1990 Weapon Systems Acquisition 1990 Contract
Management 1992 Systems Development and Modernization Efforts 1995
Financial Management 1995 Infrastructure Management 1997

(709394) Le t t e r

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