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HIGH-RISK SERIES

An Update

Report to Congressional Committees

February 2013

GAO-13-283

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United States Government Accountability Office

GAO

United States Government Accountability Office

Highlights of GAO-13-283, a report to

congressional committees

February 2013

HIGH-RISK SERIES

An Update

Why GAO Did This Study

The federal government is the world’s

largest and most complex entity, with

about $3.5 trillion in outlays in fiscal

year 2012 funding a broad array of

programs and operations. GAO

maintains a program to focus attention

on government operations that it

identifies as high risk due to their

greater vulnerabilities to fraud, waste,

abuse, and mismanagement or the

need for transformation to address

economy, efficiency, or effectiveness

challenges. Since 1990, more than

one-third of the areas previously

designated as high risk have been

removed from the list because

sufficient progress was made to

address the problems identified.

This biennial update describes the

status of high-risk areas listed in 2011

and identifies any new high-risk area

needing attention by Congress and the

executive branch. Solutions to high-risk

problems offer the potential to save

billions of dollars, improve service to

the public, and strengthen the

performance and accountability of the

U.S. government.

What GAO Recommends

This report contains GAO’s views on

progress made and what remains to be

done to bring about lasting solutions

for each high-risk area. Perseverance

by the executive branch in

implementing GAO’s recommended

solutions and continued oversight and

action by Congress are essential to

achieving progress. GAO is dedicated

to continue working with Congress and

the executive branch to help ensure

additional progress is made.

What GAO Found

In February 2011, GAO detailed 30 high-risk areas. Sufficient progress has been

made to remove the high-risk designation from two areas.

• Management of Interagency Contracting. Improvements include (1)

continued progress made by agencies in addressing identified deficiencies,

(2) establishment of additional management controls, (3) creation of a policy

framework for establishing new interagency contracts, and (4) steps taken to

address the need for better data on these contracts.

• Internal Revenue Service Business Systems Modernization. The Internal

Revenue Service (IRS) made progress in addressing significant weaknesses

in information technology and financial management capabilities. IRS

delivered the initial phase of its cornerstone tax processing project and

began the daily processing and posting of individual taxpayer accounts in

January 2012. This enhanced tax administration and improved service by

enabling faster refunds for more taxpayers, allowing more timely account

updates, and faster issuance of taxpayer notices. In addition, IRS has put in

place close to 80 percent of the practices needed for an effective investment

management process, including all of the processes needed for effective

project oversight.

While these two areas have been removed from the High Risk List, GAO will

continue to monitor them.

This year, GAO has added two areas.

• Limiting the Federal Government’s Fiscal Exposure by Better Managing

Climate Change Risks. Climate change creates significant financial risks for

the federal government, which owns extensive infrastructure, such as

defense installations; insures property through the National Flood Insurance

Program; and provides emergency aid in response to natural disasters. The

federal government is not well positioned to address the fiscal exposure

presented by climate change, and needs a government wide strategic

approach with strong leadership to manage related risks.

• Mitigating Gaps in Weather Satellite Data. Potential gaps in environmental

satellite data beginning as early as 2014 and lasting as long as 53 months

have led to concerns that future weather forecasts and warnings—including

warnings of extreme events such as hurricanes, storm surges, and floods—

will be less accurate and timely. A number of decisions are needed to ensure

contingency and continuity plans can be implemented effectively.

In the past 2 years notable progress has been made in the vast majority of areas

that remain on GAO’s High Risk List. This progress is due to the combined

efforts of the Congress through oversight and legislation, the Office of

Management and Budget through its leadership and coordination, and the

agencies through their efforts to take corrective actions to address longstanding

problems and implement related GAO recommendations. View GAO-13-283. For more information,

contact J. Christopher Mihm at (202) 512-6806

or [email protected]

GAO’s 2013 High Risk List

Strengthening the Foundation for Efficiency and Effectiveness

• Limiting the Federal Government’s Fiscal Exposure by Better Managing Climate Change Risks (new)

• Management of Federal Oil and Gas Resources

• Modernizing the U.S. Financial Regulatory System and Federal Role in Housing Finance

• Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability

• Funding the Nation’s Surface Transportation System

• Strategic Human Capital Management

• Managing Federal Real Property

Transforming DOD Program Management

• DOD Approach to Business Transformation

• DOD Business Systems Modernization

• DOD Support Infrastructure Management

• DOD Financial Management

• DOD Supply Chain Management

• DOD Weapon Systems Acquisition

Ensuring Public Safety and Security

• Mitigating Gaps in Weather Satellite Data (new)

• Strengthening Department of Homeland Security Management Functions

• Establishing Effective Mechanisms for Sharing and Managing Terrorism-Related Information to Protect the Homeland

• Protecting the Federal Government’s Information Systems and the Nation’s Cyber Critical Infrastructures

• Ensuring the Effective Protection of Technologies Critical to U.S. National Security Interests

• Revamping Federal Oversight of Food Safety

• Protecting Public Health through Enhanced Oversight of Medical Products

• Transforming EPA’s Processes for Assessing and Controlling Toxic Chemicals

Managing Federal Contracting More Effectively

• DOD Contract Management

• DOE’s Contract Management for the National Nuclear Security Administration and Office of Environmental Management

• NASA Acquisition Management

Assessing the Efficiency and Effectiveness of Tax Law Administration

• Enforcement of Tax Laws

Modernizing and Safeguarding Insurance and Benefit Programs

• Improving and Modernizing Federal Disability Programs

• Pension Benefit Guaranty Corporation Insurance Programs

• Medicare Program

• Medicaid Program

• National Flood Insurance Program

Source: GAO.

Page i GAO-13-283 High-Risk Series

Letter 1

High-Risk Designation Removed 4

New High-Risk Areas 14

Evolving High-Risk Areas 28

Narrowing High-Risk Areas 29

Progress Being Made in Remaining High-Risk Areas 38

Modifying High-Risk Area 59

Overviews for Each High-Risk Area 60

Limiting the Federal Government’s Fiscal Exposure by Better

Managing Climate Change Risks 61

Management of Federal Oil and Gas Resources 76

Modernizing the U.S. Financial Regulatory System and

Federal Role in Housing Finance 81

Restructuring the U.S. Postal Service to Achieve Sustainable

Financial Viability 88

Funding the Nation’s Surface Transportation System 92

Strategic Human Capital Management 97

Managing Federal Real Property 106

DOD Approach to Business Transformation 110

DOD Business Systems Modernization 118

DOD Support Infrastructure Management 125

DOD Financial Management 134

DOD Supply Chain Management 142

DOD Weapon Systems Acquisition 149

Mitigating Gaps in Weather Satellite Data 155

Strengthening Department of Homeland Security

Management Functions 161

Establishing Effective Mechanisms for Sharing and Managing

Terrorism-Related Information to Protect the Homeland 173

Protecting the Federal Government’s Information Systems

and the Nation’s Cyber Critical Infrastructures 184

Ensuring the Effective Protection of Technologies Critical

to U.S. National Security Interests 192

Revamping Federal Oversight of Food Safety 196

Protecting Public Health through Enhanced Oversight of

Medical Products 202

Transforming EPA’s Processes for Assessing and Controlling

Toxic Chemicals 209

DOD Contract Management 213

Contents

Page ii GAO-13-283 High-Risk Series

DOE’s Contract Management for the National Nuclear

Security Administration and Office of Environmental

Management 218

NASA Acquisition Management 225

Enforcement of Tax Laws 230

Improving and Modernizing Federal Disability Programs 235

Pension Benefit Guaranty Corporation Insurance Programs 241

Medicare Program 246

Medicaid Program 255

National Flood Insurance Program 261

Appendix I High Risk Program History 266

Tables

Table 1: Criteria for Removal from High Risk List and Examples of

Actions by Congress, the Administration, and Agencies

Leading to Progress 28

Table 2: GAO’s Assessment of DHS’s Progress in Addressing Key

Actions and Outcomes 35

Table 3: Examples of Congressional Actions and Administration

Initiatives Leading to Progress on High-Risk Areas 39

Table 4: USPS Financial Results, Fiscal Years 2006 through 2012 89

Table 5: GAO’s Assessment of DHS’s Progress in Addressing Key

Actions and Outcomes 166

Table 6: Status of Action Items 174

Table 7: Descriptions of Priority Areas 188

Table 8: Changes to High Risk List, 1990-2013 266

Table 9: Areas Removed from High Risk List, 1990-2013 267

Table 10: Year That Area’s on GAO’s 2013 High Risk List Were

Designated High Risk 268

Figures

Figure 1: A Potential Gap in the Afternoon Orbit 23

Figure 2: Agencies are Facing a Retirement Wave 100

Figure 3: Percentage of Programs Meeting Total Acquisition Cost

Growth Targets 150

Figure 4: Incidents Reported to US-CERT, Fiscal Years 2006-2012 185

Figure 5: Information Security Weaknesses at Major Federal

Agencies for Fiscal Year 2012 186

Figure 6: PBGC’s Net Financial Position, Single-Employer and

Multiemployer Programs Combined 242

Page iii GAO-13-283 High-Risk Series

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Page 1 GAO-13-283 High-Risk Series

United States Government Accountability Office

Washington, DC 20548

February 2013

The Honorable Thomas R. Carper

Chairman

The Honorable Tom Coburn, M.D.

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Darrel E. Issa

Chairman

The Honorable Elijah E. Cummings

Ranking Member

Committee on Oversight and Government Reform

House of Representatives

GAO regularly reports on government operations that it identifies as high

risk. This effort, supported by the Senate Committee on Homeland

Security and Governmental Affairs and the House of Representatives

Committee on Oversight and Government Reform, has brought much￾needed focus to problems impeding effective government and costing

billions of dollars each year. To help improve these high-risk operations,

GAO has made hundreds of recommendations, and the administration

and agencies have addressed, or are addressing, many of them.

Congress also continues to take actions that are important to helping

resolve high-risk issues.

This year GAO is removing the high-risk designation from two areas—

Management of Interagency Contracting and IRS Business Systems

Modernization—and designating two new high-risk areas— Limiting the

Federal Government’s Fiscal Exposure by Better Managing Climate

Change Risks and Mitigating Gaps in Weather Satellite Data. These

changes bring GAO’s 2013 High Risk List to a total of 30 areas.

Throughout the past two decades, attention to high-risk areas has

brought results. More than one-third of the areas previously designated

as high risk have been removed from the list because sufficient progress

was made to address the problems identified.1

1

For more information on the history of the high risk program, see appendix I.

Further, progress has

Comptroller General

of the United States

Page 2 GAO-13-283 High-Risk Series

been made in nearly all of the areas that remain on GAO’s High Risk List

as a result of congressional oversight and action, high-level

administration attention, efforts of the responsible agencies, and support

from GAO through its many recommendations and consistent follow-up

on the implementation of recommended actions. In three areas—

Management of Federal Oil and Gas Resources, Strengthening

Department of Homeland Security Management Functions, and DOE’s

Contract Management for the National Nuclear Security Administration

and Office of Environmental Management—progress has been sufficient

for GAO to narrow the scope of the high-risk issue.

Additional progress is both possible and needed in all 30 high-risk areas.

Continued perseverance will ultimately yield significant benefits. Lasting

solutions to high-risk problems offer the potential to save billions of

dollars, dramatically improve service to the American public, strengthen

public confidence and trust in the performance and accountability of the

federal government, and ensure the ability of government to deliver on its

promises.

The high risk effort continues to be a top priority and GAO will maintain its

emphasis on identifying high-risk issues across government and providing

insights and sustained attention to help address them, working

collaboratively with Congress, agency leaders, and the Office of

Management and Budget. As part of this effort, GAO continues to

participate in regular meetings with the Office of Management of Budget’s

Deputy Director for Management and top agency officials to discuss plans

for addressing high-risk areas. Such efforts are critical for progress to

continue.

Page 3 GAO-13-283 High-Risk Series

This high risk update is intended to help inform the oversight agenda for

the 113th Congress and guide efforts of the administration and agencies

to improve government performance and reduce waste and risks. GAO is

providing this update to the President and Vice President, congressional

leadership, other Members of Congress, the Office of Management and

Budget, and the heads of major departments and agencies.

Gene L. Dodaro

Comptroller General

of the United States

High-Risk Designation Removed

Page 4 GAO-13-283 High-Risk Series

When legislative, administration, and agency actions, including those in

response to our recommendations, result in significant progress toward

resolving a high-risk area, we remove the high-risk designation. Key to

determining if the high-risk designation can be removed are the following

five elements: (1) a demonstrated strong commitment to, and top

leadership support for, addressing problems; (2) the capacity to address

problems; (3) a corrective action plan; (4) a program to monitor corrective

measures; and (5) demonstrated progress in implementing corrective

measures.

For our 2013 high risk update, we determined that two areas warranted

removal from the High Risk List: Management of Interagency Contracting

and IRS Business Systems Modernization. As we have with areas

previously removed from the High Risk List, we will continue to monitor

these areas, as appropriate, to ensure that the improvements we have

noted are sustained. If significant problems again arise, we will consider

reapplying the high-risk designation.

We are removing the management of interagency contracting from the

High Risk List based on (1) continued progress made by agencies in

addressing previously identified deficiencies, (2) establishment of

additional management controls, (3) creation of a policy framework for

establishing new interagency contracts, and (4) steps taken to address

the need for better data on these contracts. Congressional oversight and

the leadership of the Office of Management and Budget’s (OMB) Office of

Federal Procurement Policy (OFPP)—which provides direction on

government-wide procurement policies—have been vital in addressing

the issues that led this area to be designated high risk.

Interagency contracting—where one agency either places an order using

another agency’s contract or obtains contracting support services from

another agency—can help streamline the procurement process, take

advantage of unique expertise in a particular type of procurement, and

achieve savings. Interagency contracts are designed to leverage the

government’s buying power and allow for agencies to meet the demands

for goods and services at a time when the federal government is focused

on achieving efficiencies in the acquisition process. While this method of

contracting can save the government money and effort when properly

managed, it also poses a variety of risks.

In 2005, we designated the management of interagency contracting as

high risk due in part to unclear lines of accountability between customer

High-Risk Designation Removed

Management of

Interagency Contracting

High-Risk Designation Removed

Page 5 GAO-13-283 High-Risk Series

and assisting agencies and the potential for improper use, including out￾of-scope work and noncompliance with competition requirements.2 In our

2007 high risk update, we identified the continuing need for (1) additional

management controls and guidance and (2) clearer definitions of roles

and responsibilities as the keys to addressing these issues.3 In our 2011

high risk update, we highlighted additional challenges agencies faced in

fully realizing the benefits of interagency contracts, including the lack of

data and the risk of potential duplication when new contracting vehicles

are created.4

The federal government has made significant progress in reducing the

interagency contracting risks that led to our high-risk designation. In our

2009 and 2011 high risk updates we noted improvements in procedures

used in making purchases on behalf of the Department of Defense

(DOD)—the largest user of interagency contracts. These included better

defined roles and responsibilities and enhanced controls over funding

procedures. Additionally, the DOD Inspector General has reported a

significant decrease in problems with DOD procurements through other

federal agencies in congressionally mandated reviews of interagency

acquisitions. We also noted that the General Services Administration

(GSA) and OMB have established corrective action plans to implement

our prior recommendations. Since our last update, as discussed in the

following sections, federal agencies have continued to address

weaknesses related to the use, creation, and oversight of interagency

contracting vehicles.

Duplication among interagency contracts can result in

missed opportunities to leverage the government’s buying power and may

adversely affect the administrative efficiencies and cost savings expected

with their use. To address these issues, our prior work identified the need

for (1) a policy framework and business case analysis requirements to

support the creation of certain new contracts and (2) improved data on

existing interagency contracts.

2

GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005).

3

GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007).

4

GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011).

High-Risk Designation Removed

Page 6 GAO-13-283 High-Risk Series

Strengthened management controls for the use of interagency

contracts. Most agencies have taken steps to implement and reinforce

interagency contracting policies to address prior concerns about the

improper use of these contracts. In response to congressional direction,5

Federal Acquisition Regulation (FAR) provisions on interagency

acquisitions were revised to require that agencies make a best

procurement approach determination to justify the use of an interagency

contract and prepare written interagency agreements outlining the roles

and responsibilities of customer and assisting organizations.6 The best

procurement approach determination ensures that the requesting agency

considers factors such as the suitability of the contract vehicle and

compliance with laws and policies. Congress also strengthened

requirements for interagency acquisitions performed on behalf of DOD as

well as the competition rules for placing orders on multiple-award

contracts, which are commonly used in interagency acquisitions.7 As we

recently reported, OMB’s October 2012 analysis of reports from the 24

agencies that account for almost all contract spending government-wide

found that most had implemented management controls to reinforce the

new FAR requirements and strengthen the management of interagency

acquisitions. All 24 agencies also reported having oversight mechanisms

to ensure their internal controls were operating properly.8

5

Pub. L. No. 110-417, § 865 (2008).

6

FAR § 17.502-1. The interim FAR rule was issued in December 2010; the final rule was

issued in February 2012.

7

Pub. L. No. 110-181, § 801(b) (2008) and Pub. L. No. 110-417, § 863 (2008).

8

GAO, Interagency Contracting: Agency Actions Address Key Management Challenges,

but Additional Steps Needed to Ensure Consistent Implementation of Policy Changes,

GAO-13-133R (Washington, D.C.: January 2013). We also reported on DOD’s

implementation of the new FAR requirements and found that for almost all of the selected

orders, DOD effectively delineated roles and responsibilities by completing interagency

agreements as required.

High-Risk Designation Removed

Page 7 GAO-13-283 High-Risk Series

New controls over creation of new interagency contract vehicles. In

response to congressional direction9 and our prior recommendation, OMB

established a policy framework in September 2011 to govern the creation

of new interagency contract vehicles.10

Improved data on interagency contracts. In response to our

recommendations, OMB and GSA have taken a number of steps to

address the need for better data on interagency contract vehicles. These

efforts should enhance both government-wide efforts to manage

interagency contracts and agency efforts to conduct market research and

negotiate better prices. To promote better and easier access to data on

existing contracts, OMB has made improvements to its Interagency

Contract Directory, a searchable online database of indefinite-delivery

vehicles available for interagency use. It has also posted information on

government-wide acquisition contracts and blanket purchase agreements

available for use under the Federal Strategic Sourcing Initiative on an

OMB website, accessible by federal agencies.

The framework addresses

concerns about potential duplication by requiring agencies to develop a

thorough business case prior to establishing certain contract vehicles.

The guidance further requires senior agency officials to approve the

business cases and post them on an OMB website to provide interested

federal stakeholders an opportunity to offer feedback. OMB then is able to

conduct follow-up with sponsoring agencies if significant questions,

including ones related to duplication, are raised during the vetting

process. OMB also has established a new strategic sourcing governance

council, which is expected to examine how to use existing interagency

contract vehicles to support government-wide strategic sourcing efforts.

11

9

Pub. L. No. 110-417, § 865 (2008).

Improving the availability

of data is also a key facet of GSA’s Schedules Modernization initiative,

launched in June 2012. GSA has several pilot projects underway to

collect and share data on its Multiple Award Schedules program, with the

goal of improving pricing. GSA also has assembled a data team to

improve access to comprehensive and reliable data across GSA

contracting programs.

10OMB, OFPP, Development, Review, and Approval of Business Cases for Certain

Interagency and Agency-Specific Acquisitions (Washington, D.C.: Sept. 29, 2011).

11The Federal Strategic Sourcing Initiative was established in 2005 to address

government-wide opportunities to strategically source commonly purchased products and

services.

High-Risk Designation Removed

Page 8 GAO-13-283 High-Risk Series

Removing the management of interagency contracting from the High Risk

List does not mean that the federal government’s use of these contracts

is without challenges. For example, we and the DOD Inspector General

have found instances in which DOD did not complete best procurement

approach determinations as required.12 Continued management attention

is necessary. But, we believe there are mechanisms in place that OMB

and federal agencies can use to identify and address interagency

contracting issues before they put the government at significant risk for

waste, fraud, or abuse. For example, the revised FAR rules on

interagency acquisitions require senior procurement executives to submit

an annual report on interagency acquisitions to OMB, which can use

these to identify issues and risks at the agency level as well as

government-wide trends. In addition, many agencies have reported

building interagency contracting into internal reviews. Finally, we plan to

continue to monitor the management of interagency contracts in our

reviews of federal contracting.

We are removing the Internal Revenue Service’s (IRS) Business Systems

Modernization (BSM) program from the High Risk List because of IRS’s

progress in addressing the significant weaknesses in information

technology (IT) and financial management capabilities that led to the

high-risk designation, and its commitment to sustaining progress in the

future. As we have with other areas we have removed, we will continue to

monitor this area, as appropriate, to ensure that the improvements we

have noted are sustained.

BSM is a multi-billion dollar, highly-complex effort that involves the

development and delivery of a number of modernized tax administration

and internal management systems as well as core infrastructure projects

that are intended to replace the agency’s aging business and tax

processing systems. It is critical to providing improved and expanded

service to taxpayers and internal business efficiencies for IRS and

providing the reliable and timely financial management information

needed to better enable the agency to justify its resource allocation

decisions and funding requests. IRS began modernizing its timeworn,

paper-intensive approach to tax returns processing in the mid-1980s.

12GAO-13-133R and Department of Defense, Inspector General, Contracting

Improvements Still Needed in DOD’s FY 2011Purchases Made Through the Department

of Veterans Affairs, DODIG-2013-028 (Alexandria, VA.: Dec. 7, 2012).

IRS Business Systems

Modernization

High-Risk Designation Removed

Page 9 GAO-13-283 High-Risk Series

In 1995, we identified serious management and technical weaknesses in

the modernization program that jeopardized its successful completion.

We recommended many actions to fix the problems, and added IRS’s

modernization to our High Risk List. In 1995, we also added the agency’s

financial management to our High Risk List due to long-standing and

pervasive problems which hampered the effective collection of revenues

and precluded the preparation of auditable financial statements.13

In 2007 and 2009, we reported that IRS had made progress in

establishing management capabilities and addressing financial

management weaknesses.

We

combined the two issues into one high-risk area in 2005 since resolution

of the most serious financial management problems depended largely on

the success of the business systems modernization program.

14

However, we kept BSM on the High Risk List because many challenges

remained, including (1) improving processes for delivering modernized IT

systems within cost and schedule estimates, (2) developing the cost and

revenue information needed to support day-to-day decision making, and

(3) addressing outstanding weaknesses in information security.

For example, in 2007, the agency developed

a high-level modernization vision and strategy to address program

changes and provide a modernization road map. In addition, it developed

policies, procedures, and tools for developing and managing project

requirements. IRS also implemented the initial phase of several key

automated financial management systems, including a cost accounting

module that it populated with data; developed a methodology to allocate

costs to its business units; improved the reliability of its property and

equipment records; and made significant progress in addressing long￾standing deficiencies in controls over tax revenue collections, tax refund

disbursements, and hard-copy tax receipts and related data. In addition,

IRS completed several pilot projects to demonstrate its ability to

determine the full cost of its programs and activities.

15

13GAO, High-Risk Series: An Overview, HR-95-1 (Washington, D.C.: Feb. 1, 1995).

Throughout those years, Congress conducted oversight of the BSM

program by, among other things, requiring that IRS submit annual

14GAO, High-Risk Series: An Update, GAO-09-271 (Washington, D.C.: Jan. 22, 2009),

and GAO-07-310.

15GAO-09-271.