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Before the Subcommittee on Oversight of Government Management, the 
Federal Workforce, and the District of Columbia, Committee on Homeland 
Security and Governmental Affairs, U.S. Senate: 

For Release on Delivery Expected at 2:30 p.m. EST Wednesday, March 15, 

GAO's High-Risk Program: 

Statement of David M. Walker: 
Comptroller General of the United States: 


GAO Highlights: 

Highlights of GAO-06-497T, a testimony before the Subcommittee on 
Oversight of Government Management, the Federal Workforce, and the 
District of Columbia, Committee on Homeland Security and Governmental 
Affairs, U.S. Senate: 

Why GAO Did This Study: 

GAO audits and evaluations identify federal programs and operations 
that in some cases are high risk due to their greater vulnerabilities 
to fraud, waste, abuse, and mismanagement. Increasingly, GAO also has 
identified high-risk areas that are in need of broad-based 
transformations to address major economy, efficiency, or effectiveness 
challenges. Since 1990 with each new Congress, GAO has reported on its 
high-risk list. GAO’s most recent update, in January 2005, presented 
the 109th Congress with the latest status of existing and new high-risk 
areas warranting attention by both the Congress and the administration. 
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 our national government, and ensure the ability of 
government to deliver on its promises. 

What GAO Found: 

Our January 2005 high-risk update summarized progress to date in 
addressing high-risk problems, corrective actions under way, and 
additional actions needed. As part of that update, the high-risk 
designation was removed for three areas and four new areas were added 
to the high-risk list. 

This administration has looked to our high-risk program on various 
initiatives such as the President’s Management Agenda. Also, federal 
departments and agencies have shown a continuing commitment to 
addressing the root causes associated with high-risk challenges. Since 
GAO’s last update, OMB has worked with agencies in getting action 
plans, with specific goals and milestones, in place for individual high-
risk areas. This initiative offers potential for noteworthy progress, 
but implementing and sustaining the effort will be key to success. The 
Congress, too, continues to play an important role through its 
oversight and, where appropriate, legislative action targeted at the 
problems within high-risk areas. More than 60 hearings involving high-
risk areas have taken place since our last update. 

Today, GAO is designating a new high-risk area: the National Flood 
Insurance Program. The program, due to the unprecedented magnitude and 
severity of floods resulting from hurricanes in 2005, has incurred 
recent losses. These losses—estimated at $23 billion, more than the 
total claims paid in the history of the program—illustrate the risk 
associated with the federal government’s exposure for claims coverage 
in catastrophic loss years. 

This statement also addresses several ongoing high-risk issues: 

* DOD cannot ensure that the more than $200 billion it spends annually 
is used wisely and results in weapon systems and capabilities delivered 
to the warfighter as originally promised, or that its business 
practices, such as the fees paid to its contractors, promote good 
acquisition outcomes.
* The Postal Service has made significant progress in addressing some 
challenges related to its transformation efforts and long-term outlook 
but continues to face significant challenges, such as declining First-
Class Mail volumes and an unsustainable business model, that threaten 
its financial viability.
* Although DHS has made some progress in the department’s 
transformation and implementation, it continues to face significant 
challenges in several key areas, such as strategic planning, 
information sharing, disaster management and partnering with others. 
* Terminations of large underfunded pension plans have created a $23 
billion deficit for PBGC's Single Employer Insurance Program and 
additional claims seem likely in the near future; legislation is 
pending to address various aspects of these problems. 

What GAO Recommends: 

GAO has made hundreds of recommendations related to areas it has 
designated as high risk. Perseverance by the administration in 
implementing GAO’s recommended solutions and continued oversight and 
action by the Congress are essential. 

To view the full product, click on the link above. For more 
information, contact George Stalcup at (202) 512-9490 or 

[End of section] 

Mr. Chairman, Senator Akaka, Members of the Subcommittee: 

Thank you for the opportunity to discuss GAO's work related to high- 
risk areas identified in our 2005 high-risk update. As you know, we are 
scheduled to provide our next full update in January 2007, at the 
beginning of the 110th Congress. Today, I will talk about continuing 
efforts to address problem areas that we have identified through our 
high-risk program, discuss several individual high-risk issues, as well 
as a range of emerging issues and longer range challenges facing our 
government. I am also today designating a new high-risk area, the 
National Flood Insurance Program. 

I want to commend both of you and this Subcommittee in drawing needed 
attention to these important problems. Since our last update report in 
January 2005, the hearings you have held and follow-up you have done 
has been helpful, particularly for high-risk issues within the 
Department of Defense. 

As you know, this administration has looked to our high-risk program to 
help shape various governmentwide initiatives such as the President's 
Management Agenda. Clay Johnson, OMB's Deputy Director for Management, 
has directed agencies to develop action plans, complete with goals and 
milestones for reducing risk in areas GAO has designated as high risk. 
This is very encouraging, although a sustained effort will be needed. 

The "high-risk" program was begun in 1990 under the direction of my 
immediate predecessor, the Honorable Charles A. Bowsher. Since 1993, we 
have issued reports providing updates on the program at the onset of 
each new Congress. This effort, which is actively supported by your 
subcommittee, as well as the full Senate Committee on Homeland Security 
and Governmental Affairs and the House Committee on Government Reform, 
has brought a much-needed focus to problems that are impeding effective 
government and costing the taxpayers billions of dollars each year. 

During my tenure as Comptroller General, our high-risk program has 
increasingly focused on those major programs and operations that are in 
need of urgent attention and transformation in order to ensure that our 
national government functions in the most economical, efficient, and 
effective manner possible. We also continue to focus on federal 
programs and operations when they are at high risk because of their 
greater vulnerabilities to fraud, waste, abuse, and mismanagement. 

As this subcommittee knows, we have made hundreds of recommendations to 
improve these high-risk operations. Moreover, our focus on high-risk 
problems contributed to the Congress enacting a series of 
governmentwide reforms to address critical human capital challenges, 
strengthen financial management, improve information technology 
practices, and instill a more results-oriented government. 

Overall, our high-risk program has served to identify and help resolve 
serious weaknesses in areas that involve substantial resources and 
provide critical services to the public. Since our program began, the 
government has taken high-risk problems more seriously and has made 
long-needed progress toward correcting them. In some cases, progress 
has been sufficient for us to remove the high-risk designation. 

For example, in our most recent update, Student Financial Aid Programs 
was one of the three areas for which we removed the high-risk 
designation. This area had been on the high-risk list since 1990, and 
provides an example of the importance and benefit of a strong 
management commitment and a sustained effort in addressing these often 
long-standing problems. In 1998, the Congress established the 
Department of Education's (Education) Office of Federal Student Aid as 
the government's first performance-based organization, thus giving it 
greater flexibility to better address long-standing management 
weaknesses with student aid programs. In 2001, Education created a team 
of senior managers dedicated to addressing key financial and management 
problems throughout the agency, and in 2002, the Secretary of Education 
made removal from GAO's high-risk list a specific goal and listed it as 
a performance measure in Education's strategic plan. Education 
continued to improve the financial management of student financial aid 
programs, taking additional steps to address our concerns about systems 
integration, reporting on defaulted loans, and human capital 
management, which led to the removal of the high-risk designation for 
this area last year. 

In fact, 8 of the 16 areas removed from the list over the years were 
among the 14 programs and operations we included on our initial high- 
risk list in 1990 at the outset of our program. These results 
demonstrate that sustained attention and commitment by the Congress and 
agencies to resolving serious, long-standing high-risk problems have 
paid off, as root causes of the government's exposure for over half the 
areas on our original high-risk list have been successfully addressed. 

To determine which federal government programs and functions should be 
designated high risk, we used our guidance document, Determining 
Performance and Accountability Challenges and High Risks.[Footnote 1]In 
determining whether a government program or operation is high risk, we 
consider whether it involves national significance or a management 
function that is key to performance and accountability. We also 
consider whether the risk is: 

* an inherent problem, such as may arise when the nature of a program 
creates susceptibility to fraud, waste, and abuse, or: 

* a systemic problem, such as may arise when the programmatic; 
management support; or financial systems, policies, and procedures 
established by an agency to carry out a program are ineffective, 
creating a material weakness. 

Further, we consider qualitative factors, such as whether the risk: 

* involves public health or safety, service delivery, national 
security, national defense, economic growth, or privacy or citizens' 
rights, or: 

* could result in significantly impaired service; program failure; 
injury or loss of life; or significantly reduced economy, efficiency, 
or effectiveness. 

In addition, we also consider the exposure to loss in monetary or other 
quantitative terms. At a minimum, $1 billion must be at risk--major 
assets, revenue sources, and so on. 

Before making a high-risk designation, we also consider the corrective 
measures an agency may have planned or under way to resolve a material 
control weakness and the status and effectiveness of these actions. 
When legislative and/or agency actions, including those in response to 
our recommendations, result in significant and sustainable progress 
toward resolving a high-risk problem, we remove the high-risk 
designation. Key determinants here include a demonstrated strong 
commitment to and top leadership support for addressing problems, the 
capacity to do so, a corrective action plan, and demonstrated progress 
in implementing corrective measures. These determinations are based on 
the independent and professional judgment of appropriate GAO personnel. 
Consistent with these criteria, we removed the high-risk designation 
for three areas and designated four new high-risk areas as part of our 
January 2005 update report. 

Our objective for the high-risk list is to bring "light" to these areas 
as well as "heat" to prompt needed "actions." 

Long-term Fiscal Challenge: 

The specific issues I will discuss today--indeed, the specific issues 
we discuss in the high-risk reports--all take place in the context of 
what is arguably our greatest risk: the long-term fiscal outlook. We 
are currently on an imprudent and unsustainable fiscal path. We are a 
debtor nation--and we are borrowing from abroad at record rates. And on 
the domestic fiscal front the miracle of compounding works against us. 
This will only get worse on our current path. Importantly, if we act 
before a crisis forces us to act, we can, over time, turn compounding 
from an enemy to potential ally. 

GAO's high-risk series is part of our effort to assist the Congress in 
dealing with one of its important obligations--to exercise prudence and 
due care in connection with taxpayer funds. Even if we were operating 
in a time of surplus, no government should waste its taxpayers' money. 
Further, it is important for everyone to recognize that waste, fraud, 
abuse, and mismanagement are not victimless activities. Resources are 
not unlimited, and when they are diverted for inappropriate, illegal, 
inefficient, or ineffective purposes, both taxpayers and legitimate 
program beneficiaries are cheated. Both the administration and the 
Congress have an obligation to safeguard benefits for those who deserve 
them and avoid abuse of taxpayer funds by preventing diversions. Beyond 
preventing obvious abuse, the government also has an obligation to 
modernize its priorities, practices, and processes to meet the demands 
and needs of today's changing world. 

While we should have zero tolerance for fraud and abuse, we must also 
recognize that we will never in fact achieve zero fraud and abuse. 
Acknowledging this is not giving in; rather, it means we recognize that 
safeguarding taxpayer funds will be an ongoing effort. 

We should also have zero tolerance for waste--but here we must 
recognize that "waste" is a much more difficult concept than "fraud" or 
"abuse." The term can be used for things we all would agree are waste-
-for example, paying too much for supplies or unnecessary redundancy or 
duplication of administrative functions. The term is also, however, 
sometimes used in the debate about government activities and 
priorities. One citizen may see a given program or initiative as 
wasteful while another sees it as an important governmental activity. 
This debate should be part of the reexamination of programs and 
activities. I would suggest that it is wasteful to allocate limited 
revenues based on wants versus needs versus a more threat-based, risk- 
based, or other targeted approach. 

In previous testimonies, I have discussed oversight and stewardship of 
taxpayer funds on three levels: 

* vulnerability to fraud, waste, and abuse; 

* improving the economy, efficiency, and effectiveness of programs; 

* a fundamental reassessment of government programs and activities-- 
whether designed as spending programs or tax preferences. 

All three levels are important. While the high-risk series is heavily 
targeted to the first two of these, it provides information and insight 
into the third. 

New High-Risk Area: National Flood Insurance Program: 

We will continue to use the high-risk designation to draw attention to 
the challenges associated with the economy, efficiency, and 
effectiveness of government programs and operations in need of broad- 
based transformation. Our list of issues continues to evolve over time. 
Our objective is to reflect important problem areas identified in our 
work, with a goal of identifying the root causes of vulnerabilities and 
actions needed on the part of the agencies involved and, if 
appropriate, the Congress. In this vein, I would like to call your 
attention to the National Flood Insurance Program (NFIP). 

* It is highly unlikely that the NFIP will generate sufficient revenues 
to repay funds borrowed from the Treasury to cover claims for the 
unprecedented magnitude and severity of flood losses resulting from 
hurricanes in 2005, as well as any exposure for future claims coverage 
in catastrophic loss years. 

* Over the last 15 years we have reported on a variety of issues that 
affect the program, including concerns related to the sufficiency of 
the program's financial resources, compliance with mandatory purchase 
requirements, the costly impact of repetitive loss properties, and most 
recently our concerns about FEMA's billion dollar flood map 
modernization efforts and management and oversight of the NFIP. 

* FEMA has taken some steps to address these concerns, for example, by 
working to reduce the number of subsidized properties and repetitive 
loss properties insured by the NFIP, increase participation in the 
program, implement requirements of the Flood Insurance Reform Act of 
2004[Footnote 2] and improve its management and oversight of the 
program, and more strategically plan to update the nation's flood maps, 
the foundation of the NFIP. Nonetheless, the agency faces long-standing 
and complex challenges that make it likely that these issues will 

For these reasons, we are today designating a new high-risk area: the 
National Flood Insurance Program (NFIP). 

The unprecedented magnitude and severity of flood losses resulting from 
hurricanes in 2005 illustrated the extent to which the federal 
government has exposure for flood claims coverage in catastrophic loss 
years and the decision for this designation. The nation's flood losses 
in 2005 created unprecedented challenges for the Federal Emergency 
Management Agency (FEMA) as the Department of Homeland Security (DHS) 
organization responsible for managing the NFIP. As shown in figure 1, 
FEMA estimates that Hurricanes Katrina, Rita, and Wilma are likely to 
generate claims and associated payments of about $23 billion--far 
surpassing the total of about $15 billion in claims paid in the entire 
history of the NFIP up to those events. 

Figure 1: NFIP Claims Payments from 1968 to August 2005 and Estimated 
Payments for Hurricanes Katrina, Rita, and Wilma: 

[See PDF for image] 

[End of figure] 

About 90 percent of all natural disasters in the United States involve 
flooding. However, flooding is generally excluded from homeowner 
policies that typically cover damage from other losses, such as wind, 
fire, and theft. Because of the catastrophic nature of flooding and the 
inability to adequately predict flood risks, private insurance 
companies have largely been unwilling to underwrite and bear the risk 
of flood insurance. The NFIP, established in 1968, provides property 
owners with some insurance coverage for flood damage. From its 
inception in 1968 until August 2005, the NFIP paid about $15 billion in 
insurance claims, primarily from policyholder premiums that otherwise 
would have been paid through taxpayer-funded disaster relief or borne 
by home and business owners themselves. 

During the 1990s, we reported concerns regarding the NFIP, particularly 
problems related to the sufficiency of the program's financial 
resources to meet future expected losses and compliance with mandatory 
purchase requirements. Our work has continued to focus on these issues 
since fiscal year 2000, along with issues identified by our work 
regarding the challenges FEMA faces in implementing its $1.5 billion 
flood map modernization efforts and plans to address repetitive loss 
properties and enhance its management and oversight of the program. 

To limit the federal government's exposure for claims coverage in 
catastrophic loss years, FEMA must continue to provide programs to help 
states, communities, and individuals plan and implement mitigation 
strategies to reduce damage to homes, schools, public buildings, and 
critical facilities from future floods and other hazards for example, 
by encouraging them to (1) adopt and enforce more stringent building 
codes for construction in areas at risk of flooding and stricter 
development regulations and zoning ordinances that steer development 
away from areas at risk of flooding and (2) use public funds to acquire 
damaged homes or businesses in flood-prone areas, demolish or relocate 
the structures, and use properties for open space, wetlands, or 
recreational uses. FEMA must also take effective action to address long-
standing program issues and meet several major challenges facing the 
NFIP that we have identified in our prior work regarding the inherent 
solvency of the program, FEMA's management and oversight of the 
program, and modernizing the nation's flood maps to provide an accurate 
basis for the NFIP in the future. 

The program's financial resources are insufficient to meet future 
expected losses, in part because policy subsidies and repetitive loss 
properties have contributed to continuing losses to the program. 
Specifically, the program is not actuarially sound because of the 
number of policies in force that are subsidized--about 29 percent at 
the time of our 2003 testimony on this issue.[Footnote 3] As a result 
of these subsidies, some policyholders with dwellings that were built 
before flood plain management regulations were established in their 
communities pay premiums that represent about 35 to 40 percent of the 
true risk premium. In January 2006, FEMA estimated a shortfall in 
annual premium income because of policy subsidies at $750 million. 
Moreover, at the time of our 2004 testimony,[Footnote 4] there were 
about 49,000 repetitive loss properties--those with two or more losses 
of $1,000 or more in a 10-year period--representing about 1 percent of 
the 4.4 million buildings insured under the program. From 1978 until 
March 2004, these repetitive loss properties represented about $4.6 
billion in claims payments. 

The extent of participation in the program may also contribute to its 
financial insolvency. Specifically, the level of noncompliance with 
current mandatory purchase requirements by affected property owners is 
unknown and voluntary participation in the program is limited. Some in 
Congress have expressed interest in assessing the feasibility of 
expanding mandatory purchase requirements beyond current special high- 
risk flood hazard areas. 

It is essential that FEMA provide effective management and oversight of 
NFIP operations because the agency largely relies on others to address 
these issues. FEMA's role for the NFIP is principally one of 
establishing policies and standards that others generally implement on 
a day-to-day basis and providing financial and management oversight of 
those who carry out those day-to-day responsibilities. For example, in 
our October 2005 report,[Footnote 5] we said that FEMA faces a 
challenge in providing effective oversight of the 95 insurance 
companies and thousands of insurance agents and claims adjusters who 
are primarily responsible for the day-to-day process of selling and 
servicing flood insurance policies. 

The unprecedented impact of Hurricane Katrina on hundreds of thousands 
of homeowners in the Gulf Coast has also highlighted the importance of 
FEMA's efforts to develop accurate, digital flood maps in implementing 
its $1.5 billion Flood Map Modernization program. Accurate, up-to-date 
flood maps are needed for builders and developers to make good 
decisions on where to build and to ensure that property owners have 
information on the flood risks they face in rebuilding entire 
communities devastated by the hurricanes. However, our work[Footnote 6] 
and the work of the DHS Inspector General[Footnote 7] has shown, among 
other things, that FEMA faces a major challenge in working with its 
contractor and state and local partners of varying technical 
capabilities and resources to produce accurate digital flood maps. In 
developing those maps, we recommended that FEMA develop and implement 
data standards that will enable FEMA, its contractor, and its state and 
local partners to identify and use consistent data collection and 
analysis methods for developing maps for communities with similar flood 
risk. Some stakeholders have questioned the adequacy of FEMA's 
estimates of the cost and schedule for completing its map modernization 

FEMA has taken some steps to address these concerns. Regarding its 
efforts to improve the solvency of the program, FEMA reported that the 
number of subsidized properties insured by the NFIP dropped from about 
70 percent in 1978 to about 30 percent in 1999; however, this trend 
appears to have slowed in that since 1999 FEMA reports that the number 
of subsidized properties has only decreased by about 6 percent. 
Similarly, FEMA has made efforts to reduce the number of repetitive 
loss properties. However, FEMA has not yet implemented a pilot program 
authorized by the Flood Insurance Reform Act of 2004 specifically 
targeting the most severely repetitive loss properties, and, in any 
case, this program will only address a small number of these 
properties. Specifically, about 6,000 repetitive loss properties that 
have accounted for about $792 million in losses since 1978 could be 
considered for mitigation efforts funded through the pilot program. 

FEMA also has efforts under way to increase participation in the NFIP 
by marketing flood insurance policies. However, as noted in a recent 
evaluation of mandatory compliance conducted for FEMA,[Footnote 8] FEMA 
does not have a central role in implementing the mandatory purchase 
requirement. The evaluation recommended that FEMA should explore 
opportunities to exercise a leadership role in promoting compliance and 
in assisting the federal entities for lending regulation to meet their 
obligations related to the mandatory purchase of flood insurance. 

Regarding FEMA's management and oversight of the program, the agency is 
implementing the Flood Insurance Reform Act (FIRA) of 2004. However, as 
we noted in our report,[Footnote 9] FEMA's use of a sampling strategy 
for quality control purposes uses an approach that is not statistically 
valid, and thus does note provide management with the information 
needed to assess the overall performance of the private insurance 
companies who sell flood insurance. FEMA needs this information, 
including the overall accuracy of the underwriting of NFIP policies and 
the adjustment of claims, to have reasonable assurance that program 
objectives are being achieved. FEMA program officials did not agree 
with our recommendation stating that the agency's method of selecting 
samples for operational reviews was more appropriate than the random 
probability sample we recommended. 

Regarding map modernization efforts, FEMA issued the Multi-Year Flood 
Hazard Identification Plan[Footnote 10] that describes FEMA's strategy 
for updating flood maps used for NFIP purposes and addresses several of 
our recommendations. The current version of the plan (version 1.5, 
issued June 2005) updates FEMA's anticipated schedule and funding for 
flood map updates through fiscal year 2009. While the plan establishes 
levels of risk for determining the level of data definition and 
reliability used for flood maps, it does not define criteria (high 
population, high density, or high anticipated growth) or how the agency 
will apply them in assigning risk categories for flood maps to 
determine the level of data definition and reliability needed for 
future mapping projects. Echoing these concerns, the DHS Inspector 
General in reviewing the plan also concluded, among other things, that 
the plan should be revised to improve the sequencing and funding for 
mapping efforts in high-risk areas.[Footnote 11] Finally, some have 
questioned the adequacy of FEMA's estimates of the cost and schedule 
for completing its map modernization efforts. For example, the FEMA 
Office of Inspector General reported on this issue in September 2000 
noting that implementation would cost $750 million between 2001 and 
2007. When we reported on the plan in March 2004, FEMA's estimated cost 
had increased to $1 billion for a 5-year program from 2003-2008. By 
September 2005, when the DHS Office of Inspector General reviewed the 
status of the program, the estimated budget was $1.5 billion for a 6 
year program extending to 2009. In testifying on the issue in July 
2005, a representative of the Association of State Flood Plain Managers 
cited an analysis conducted by the Association in August 2005 which 
estimated that FEMA's map modernization program could cost as much as 
$2-3 billion. 

The increasing frequency, severity, and economic impact of flood events 
on the nation place increasing pressure on FEMA and DHS to address 
these concerns and enhance the program's ability to provide an 
insurance alternative to disaster assistance and reduce future flood 
damage through floodplain management. Under my authority, we are 
currently reviewing the NFIP in light of the unprecedented demands and 
unique challenges the hurricanes of 2005 placed upon FEMA and Gulf 
Coast communities. As part of this effort, we are also reassessing many 
of the longstanding issues and concerns we and others have raised 
regarding the key aspects of the program I have discussed here today. 
In conducting our review, we have, and plan to continue to, coordinate 
our efforts with this subcommittee and other key Congressional 
stakeholders to ensure that you are informed and continue to have the 
opportunity to provide input to our ongoing efforts. 

The complex and, in many cases, long-standing nature of the management 
challenges associated with the NFIP and the flood map modernization 
program (upon which the NFIP relies for producing accurate and readily 
accessible flood maps) will continue to increase the federal 
government's exposure to potentially billions of dollars of NFIP claims 
for coverage in future catastrophic loss years. This suggests the need 
for greater and sustained national focus and management attention by 
both FEMA and DHS. Just as flood insurance reform legislation in 
1994[Footnote 12] and 2004 mandated changes to improve the 
effectiveness of, and participation in the program, the Congress, too, 
will continue to play an important role through legislative actions 
needed to assist FEMA and DHS in addressing these challenges. Our 
objective in making this new high-risk designation today is to draw 
that needed attention and, in turn, action. 

Status of Other Selected High-Risk Areas: 

For other areas on our 2005 high-risk list, efforts to address problems 
continue on several fronts, but major challenges remain. I want to 
touch on several current high-risk issues today. 

DOD High-Risk Areas Persist: 

Given its size and mission, the Department of Defense (DOD) is one of 
the largest and most complex organizations to manage in the world. DOD 
spends billions of dollars each year to sustain key business operations 
that support our forces, including information systems and processes 
related to acquisition and contract management, financial management, 
supply chain management, business system modernization, and support 
infrastructure management. Recent and ongoing military operations in 
Iraq and Afghanistan and new homeland defense missions have led to 
newer and higher demands on our forces in a time of growing fiscal 
challenges for our nation. For years, GAO has reported on 
inefficiencies, such as the lack of sustained leadership, the lack of a 
strategic and integrated business transformation plan, and inadequate 
incentives. Moreover, the lack of adequate transparency and appropriate 
accountability across DOD's major business areas results in billions of 
dollars of wasted resources annually. To its credit, DOD has embarked 
on a series of efforts to reform its business operations, including 
modernizing underlying information technology (business) systems. 
However, serious challenges and inefficiencies remain. In fact, eight 
individual items on GAO's high-risk list and several government wide 
high-risk areas apply to DOD. At the highest levels, DOD's civilian and 
military leaders appear committed to reform; however, the department 
faces significant challenges in achieving its transformation goals. In 
addition, this overall transformation effort will take many years of 
sustained attention by leaders at all levels in order to succeed. 

Management of DOD's Weapon Systems Acquisitions and Contractor 

One area in particular that I would like to highlight today pertains to 
DOD's management of its major weapon systems acquisitions and its 
contractors. As the largest buyer in the federal government and as the 
agency entrusted with the nation's defense, DOD has an obligation to 
ensure that its funds are spent wisely and result in weapons systems 
and capabilities being delivered to the warfighter when needed. Over 
the last 5 years, DOD has doubled its planned investments in new weapon 
systems from about $700 billion in 2001 to nearly $1.4 trillion in 
2006. Overall, DOD now spends more than $200 billion annually on goods 
and services. While DOD eventually fields the best weapon systems in 
the world, we have consistently reported that the programs take 
significantly longer and cost significantly more money and deliver 
fewer quantities and capabilities than the business cases that 
supported the acquisitions originally promised. Similarly, we have 
reported that DOD is unable to assure that it is using sound business 
practices to acquire the goods and services needed to meet the 
warfighter's needs. DOD's policies may incorporate best practices, but 
its actual decisions and actions are not consistent therewith. 
Unfortunately, DOD has a track record of over promising and under 
delivering in connection with key acquisition and other business 

We have identified DOD's weapon systems and contract management as high-
risk areas for more than a decade. While each has some unique issues 
that can be addressed on a case-by-case basis, there are other elements 
that need to be addressed from a broader acquisition context. In this 
regard, we testified earlier this month that the business case and 
business arrangements were key to the success of the Army's Future 
Combat System (FCS).[Footnote 13] The FCS is a networked family of 
weapons and other systems in the forefront of efforts by the Army to 
become a lighter, more agile, and more capable combat force. In total, 
projected investment costs for the FCS are estimated to be about $200 
billion. While we found a number of compelling aspects of the FCS 
program, the elements of a sound business case for such an acquisition 
program--firm requirements, mature technologies, a knowledge-based 
acquisition strategy, a realistic cost estimate, and sufficient 
funding--are not yet present. Similarly, we noted that just as 
important, DOD needed to ensure the FCS's business arrangements, 
primarily in the nature of the development contract and in the lead 
system integrator approach, preserved the government's ability to make 
informed business decisions in the future. 

We looked at one element of a sound business arrangement--the award and 
incentives fees provided to the contractors to promote excellence in 
performance--in a report issued in December 2005.[Footnote 14] In that 
report, we noted that DOD programs routinely engage in award-fee 
practices that do not hold contractors accountable for achieving 
desired outcomes and undermine efforts to motivate contractor 
performance, such as: 

* evaluating contractors on award-fee criteria that are not directly 
related to key acquisition outcomes (e.g., meeting cost and schedule 
goals and delivering desired capabilities to the warfighter); 

* paying contractors a significant portion of the available fee for 
what award-fee plans describe as "acceptable, average, expected, good, 
or satisfactory" performance; and: 

* giving contractors at least a second opportunity to earn initially 
unearned or deferred fees. 

As a result, DOD paid out an estimated $8 billion in award fees on 
contracts in GAO's study population, regardless of whether acquisition 
outcomes fell short of, met, or exceeded DOD's expectations. 

We have identified numerous other examples in which DOD failed to 
execute its contracts properly, creating unnecessary risks and paying 
higher prices than justified. For example, in March 2005, we reported 
that deficiencies in DOD's oversight of service contractors placed DOD 
at risk of paying the contractors more than the value of the services 
they performed.[Footnote 15] In other reports, we identified numerous 
issues in DOD's use of interagency contracting vehicles that 
contributed to poor acquisition outcomes.[Footnote 16] 

These issues, along with those we have identified in DOD's acquisition 
and business management processes, present a compelling case for 
change.[Footnote 17] By implementing the recommendations we have made 
on individual issues, DOD can improve specific processes and 
activities. At the same time, by working more broadly to improve its 
acquisition practices, DOD can set the right conditions for becoming a 
smarter buyer, getting better acquisition outcomes, and making more 
efficient use of its resources in what is sure to be a more fiscally 
constrained environment. Then, assessments such as the Quadrennial 
Defense Review can be valuable. Unless changes are made, however, DOD 
will continue on a course where wants, needs, and affordability are 
mismatched, with predictably unsatisfactory results. 

U.S. Postal Service Transformation Efforts and Long-term Outlook: 

In 2001, we placed the Postal Service's (the Service) transformation 
and long-term outlook on our high-risk list because it faced formidable 
financial, operational, and human capital challenges that threatened 
its long-term viability. We called for prompt, aggressive action by the 
Service in addressing these challenges and for a structural 
transformation that would modernize the Service's outdated business 
model. Since then, the Service has made significant progress in 
addressing some of the challenges we identified, such as cutting costs, 
improving productivity, downsizing its workforce, and improving its 
financial reporting. Much of the Service's recent financial success, 
however, was due to legislation passed in 2003 that reduced the 
Service's annual pension benefit payments, thus enabling the Service to 
achieve record net incomes, repay over $11 billion of outstanding debt, 
and delay rate increases until January 2006. Despite the temporary 
relief provided by the legislation, the Service continues to face many 
challenges that will increase pressure for rate increases both in the 
short term and over time. These challenges include: 

* generating sufficient revenues as First-Class Mail volume declines 
and the mail mix changes to volume growth in primarily lower 
contribution mail; 

* controlling costs and improving productivity as growth in expenses 
continues to outpace revenues; compensation and benefit costs rise; 
workhour reductions become more difficult to realize and the number of 
delivery points continues to increase; 

* addressing other financial issues, such as growing unfunded retiree 
health obligations, required multi-billion dollar escrow payments, and 
military service pension obligations; 

* managing workforce changes related to retirements and network 

* providing reliable data to assess performance; 

* maintaining high-quality universal services; and: 

* addressing external uncertainties, such as pending postal reform 
legislation, four vacancies on the Postal Service's Board of Governors, 
and potential security risks from biohazard and other threats. 

Recently, the Service issued an updated Strategic Transformation Plan 
(Plan) that details its goals and strategies for the next 5 years. We 
support the intent of the Plan, including the Service's recent efforts 
to begin optimizing its operating network. However, as we recently 
reported, the success of the Service's optimization efforts will 
require enhanced transparency of its decision-making criteria, 
effective coordination with all key stakeholders, and a process for 
evaluating and measuring performance. Furthermore, we continue to 
believe that the Plan's incremental steps alone cannot remedy the major 
challenges facing the Service. Despite its efforts, the Service's 
underlying business model depends on growing mail volume to mitigate 
rate increases and cover its universal service costs. This model is 
unsustainable because it lacks the necessary incentives and 
flexibilities to achieve sufficient cost savings needed to offset 
growing personnel costs, declining mail volumes, and the continued 
expansion of the Service's delivery network. We continue to believe 
that comprehensive postal reform is urgently needed to modernize the 
Service's business model. 

Recognizing that the future of postal services remains at risk, the 
House and Senate have each passed postal reform bills that now are 
pending conference deliberations. Both bills would give the Service 
additional flexibility in pricing and allow it to retain earnings, 
create incentives to reduce costs and increase efficiency, reduce the 
administrative burden of the rate-making process, enhance transparency 
and accountability, eliminate the escrow fund, transfer military 
service pension costs back to the Department of the Treasury (the 
Treasury), and begin prefunding retiree health benefits. The 
legislation aims to encourage cost cutting that could restrain future 
rate increases and also improves the fairness and balance of cost 
burdens for current and future ratepayers by beginning to prefund 
retiree health benefits. It is important that this legislation be 
enacted as soon as possible to begin the Service's overdue transition 
to a modernized business model. Although the legislation may result in 
short-term rate increases, these increases are likely to be more modest 
and predictable than the significant and frequent rate increases that 
would be needed if no action is taken to eliminate the escrow 
requirement, transfer military service pension costs back to the 
Treasury, and begin prefunding growing retiree health benefit 

Implementing and Transforming DHS: 

We designated DHS's transformation as a high-risk area in 2003 because 
DHS had to transform 22 agencies into one department, DHS inherited a 
number of operational and management challenges from its component 
legacy components, and failure to effectively address its management 
challenges and program risks could have serious consequences for our 
national security. Overall, DHS has made some progress, but continues 
to face serious challenges in several key areas, such as strategic 
planning, management, programmatic areas, and forming effective 
partnerships to achieve desired outcomes. 

* DHS's strategic plan does not detail the associated resources 
necessary to carry out its mission and achieve its strategic goals and 
to demonstrate the viability of the strategies and approaches presented 
for achieving its long-term goals. In addition, stakeholder involvement 
in the planning processes of DHS programs requiring stakeholder 
coordination to implement has been limited. Also, DHS has called for 
risk-based approaches to prioritize its resource investments for 
critical infrastructure. However, while some components of DHS have 
taken initial steps to apply elements of risk management to operations 
and decision making, DHS has not completed a comprehensive national 
threat and risk assessment for the department. Any risk-based approach 
must involve efforts from and commitment by DHS, the administration, 
and the Congress. Moreover, DHS continues to face challenges in 
sustained leadership. 

* Further, key areas of management pose challenges for DHS leadership, 
including financial management, information technology, and human 
capital and acquisitions. For example, DHS continues to face 
significant financial reporting problems, as evidenced by the 
disclaimer opinion on its consolidated financial statements in fiscal 
years 2005 and 2004 and continuing financial reporting deficiencies at 
Immigration and Customs Enforcement and the Coast Guard. DHS has made 
progress in implementing key federal information security requirements, 
yet it continues to face challenges in fulfilling the requirements 
mandated by the Federal Information Security Management Act. The 
district court has partially enjoined DHS's implementation of its human 
capital management system, and the lack of clear accountability hampers 
DHS's efforts to integrate the acquisition functions of its numerous 
organizations into an effective whole: 

* Key challenges remain in DHS programmatic areas. A number of 
challenges that had been experienced by the Immigration and 
Naturalization Service have continued in the new organizations now 
responsible for immigration enforcement functions. Several factors 
limit Customs and Border Protection's ability to successfully target 
containers to determine if they are high risk, including staffing 
imbalances. Although DHS has crafted a strategic plan to show how US- 
VISIT is aligned with DHS's mission goals and operations, the plan has 
yet to be approved, causing its integration with other departmentwide 
border security initiatives to remain unclear. In addition, delays by 
the Transportation Security Administration continue in deploying 
technologies at checkpoints to screen for explosives on the body. 

* Finally, in the area of partnering, the response to Hurricane Katrina 
demonstrated that DHS also faces challenges when coordinating efforts 
across the federal government. During incidents of national 
significance, including Hurricane Katrina, the overall coordination of 
federal incident management activities is executed through the 
Secretary of Homeland Security. Other federal departments and agencies 
are to cooperate with the secretary in the secretary's domestic 
incident management role. Our initial field work on the response to 
Hurricane Katrina indicates that a lack of clarity in roles and 
responsibility resulted in disjointed efforts of many federal agencies 
involved in the response, a myriad of approaches and processes for 
requesting and providing assistance, and confusion about who should be 
advised of requests and what resources would be provided within 
specific time frames. 

PBGC Single-Employer Insurance Program: 

We first designated the Pension Benefit Guaranty Corporation (PBGC)'s 
single-employer insurance program--a program that insures benefits for 
34.2 million workers and retirees in about 28,800 defined benefit 
pension plans--for the high risk list in July 2003 because of concerns 
about its long-term financial viability. The program remains high risk 
as the program's financial condition has worsened from a $9.7 billion 
surplus in 2000 to nearly a $22.8 billion accumulated deficit as of the 
end of fiscal year 2005. Recent years have produced several 
terminations of large underfunded plans and the strong likelihood of 
additional terminations in the near future. While cyclical economic 
conditions have contributed to the program's financial troubles, it 
remains threatened by the results of globalization and deregulation or 
competitive restructuring of industries that have led to the bankruptcy 
of sponsors with large underfunded plans and a regulatory framework 
that has permitted sponsors to defer plan contributions. For example, 
total underfunding among insured single-employer plans has exceeded 
$450 billion over the last two fiscal years; $108 billion of the 
underfunding is attributable to plans sponsored by companies whose 
credit quality is below investment grade. 

Both the House and Senate recently passed comprehensive pension reform 
bills, each with different features that must be resolved in 
conference. The bills address many areas of concern that we previously 
highlighted, including the appropriate interest rates for liability 
valuation, more credible funding standards, increased premiums, 
addressing the funding of shutdown benefits, improving the timeliness 
of disclosures to participants, and clarifying the uncertain legal 
environment for hybrid pension plans. A consequence of even carefully 
crafted and well balanced reform is that some additional sponsors could 
choose to terminate their plans in a defined benefit system that has 
already seen declines in participation. However, such reform remains an 
important first step to maintaining a financially stable pension system 
that protects the retirement benefits of workers and retirees by 
providing employers reasonable funding flexibility in return for 
enhanced transparency and accountability for meeting the promises they 
make to their employees. 

In many ways, the problems facing PBGC's single-employer program 
highlight the broader challenges confronting 21ST century American 
retirement security. These challenges, including the long term 
financial weakness of Social Security and Medicare, the decline of the 
private defined benefit pension system, and our poor personal saving 
rate (which was negative in 2005), are severe and structural in nature. 
Unaddressed, these problems will not only erode the retirement safety 
net that was painstakingly built over several generations but threaten 
our nation's future economic security and thus the basic living 
standards of the American people. 

Emerging Issues: 

In addition to specific areas that we have designated as high risk, 
there are other important broad-based challenges facing our government 
that are serious and merit continuing close attention. One of these 
involves the use of risk management, a strategy for helping 
policymakers make investment and other decisions by assessing risks, 
evaluating alternatives, and taking actions under conditions of 
uncertainty. Risk management has applications for deliberate acts of 
terror as well as natural disasters, such as hurricanes and 
earthquakes. We have recently advocated using a risk management 
framework for making investment decisions to develop capabilities and 
the expertise to use them to respond to catastrophic disasters, such as 
Hurricane Katrina.[Footnote 18] Such a strategy has been endorsed by 
the Congress and the President as a way to strengthen the nation 
against possible terrorist attacks. In this regard, DHS has been 
charged with establishing a risk management framework across the 
federal government to protect the nation's critical infrastructure and 
key resources. DHS's work is done in a setting where substantial gaps 
in security remain, but resources for closing these gaps are limited. 
Within this context, in January of last year, we noted that DHS had not 
completed risk assessments to set priorities on where scarce resources 
were most needed. Our December 2005 report examined the risk management 
efforts of DHS and found that while a great amount of effort has been 
expended, there is a long way to go in implementing risk management in 
a way that helps inform decisions on programs and resource 
allocation.[Footnote 19] The most progress has been made in assessing 
risks of individual assets, such as port facilities and oil refineries. 
However, translating this information into comparisons and priorities 
across assets and infrastructure sectors remains a major challenge. DHS 
is unable to provide adequate assurance to the Congress or the country 
that the federal government is in a position to effectively manage risk 
in national security efforts. 

DHS has much more to do to more effectively manage risk as part of its 
homeland security responsibilities within current and expected resource 
levels. In the short term, progress depends heavily on continuing to 
improve policies and procedures for assessing risks, evaluating 
alternatives, and integrating these efforts into the annual cycle of 
program and budget review. An area that DHS believes needs further 
attention is working with intelligence communities to develop improved 
analysis and data on the relative probability of various threat 
scenarios. Efforts to strengthen data, methodology, and policy would 
help inform decisions on setting relative priorities and on making 
spending decisions. In the longer term, progress will rest heavily on 
how well DHS coordinates the homeland security risk management effort. 
Currently, various risk assessment approaches are being used, and in 
many ways, these approaches are neither consistent nor comparable. DHS 
has been challenged in establishing uniform policies, approaches, 
guidelines, and methodologies for infrastructure protection and risk 
management activities within and across sectors. In addition, 
integrating disparate systems, such as risk management with program and 
budget management, remains a long-term challenge. Shifting 
organizations toward this nexus of using risk-based data as part of 
annual management review cycles will take time, attention, and 
leadership. The Secretary of DHS has said that operations and budgets 
of its agencies will be reviewed through the prism of risk, but doing 
this is made difficult by the level of guidance and coordination that 
has been provided so far. 

DOD introduced its version of a risk management framework in 2001 to 
enable the department's senior leadership to better balance near-term 
demands against preparations for the future. However, in November 2005, 
we similarly found that additional steps are needed before this 
framework is fully implemented and DOD can demonstrate real and 
sustainable progress in using a risk-based and results-oriented 
approach to strategically allocate resources across the spectrum of its 
investment priorities within current and expected resource 
levels.[Footnote 20] We reported that while DOD has established four 
risk areas--force management, operational, future challenges, and 
institutional--as well as certain performance goals and measures, DOD's 
risk management framework's measures (1) do not clearly demonstrate 
results, (2) do not provide a well-rounded depiction of performance 
across the department, and (3) are not being systemically monitored 
across all quadrants. In addition, the framework's performance goals 
and measures are not clearly linked to DOD's current strategic plan and 
strategic goals. 

Without better measures, clear linkages, and greater transparency, DOD 
will be unable to fully measure progress in achieving strategic goals 
or demonstrate to the Congress and others how it considered risks and 
made trade-off decisions, balancing needs and costs for weapon system 
programs and other investment priorities. DOD faces four key challenges 
that affect its ability to fully implement the risk management 
framework, or a similar risk-based and results-oriented management 
approach: (1) overcoming cultural resistance to the transformational 
change represented by such an approach in a department as massive, 
complex, and decentralized as DOD; (2) maintaining sustained leadership 
and clear accountability for this cultural transformation; (3) 
providing implementation goals and timelines to gauge progress in 
transforming the culture; and (4) integrating the risk management 
framework with decision support processes and related reform 
initiatives into a coherent, unified management approach for the 
department. DOD recently stated in its Quadrennial Defense Review (QDR) 
Report, issued last month, that it is now taking advantage of lessons 
learned from the initial implementation phase to refine and develop a 
more robust framework to enable decision making. Unfortunately, our 
preliminary review of the QDR suggests that little progress has been 
made in choosing between wants, needs, affordability, and 
sustainability in connection with major Defense programs and 
acquisitions. Furthermore, more emphasis needs to be placed on the 
Department's overall business transformation efforts. We will continue 
to monitor DOD's efforts in these areas. 

We will also continue to monitor other management challenges identified 
through our work. While not high risk at this time, these areas warrant 
continued attention. For example, at the U.S. Census Bureau (Bureau), a 
number of operational and managerial challenges loom large as the 
Bureau approaches its biggest enumeration challenge yet, the 2010 
Census. The Bureau will undertake an important census test and make 
critical 2010 Census operational and design decisions in the coming 
months--and we will continue to closely monitor the Bureau's program to 
assist the Congress in its oversight and the Bureau in its decision 

Both the Executive Branch and the Congress Have Important Roles: 

Continued focus by both the executive branch and the Congress is needed 
in implementing our recommended solutions for addressing these high- 
risk areas. 

Top administration officials have expressed their commitment to 
maintaining momentum in seeing that high-risk areas receive adequate 
attention and oversight. In fact, the current administration has looked 
to our high-risk program in shaping such major governmentwide 
initiatives as the President's Management Agenda (PMA), which has at 
its base many of the areas we had previously designated as high risk. 
For example, in 2001, the PMA identified human capital management, an 
area which we designated as a governmentwide high-risk issue earlier 
that year, as a top priority. Following our January 2003 update, in 
which we designated management of federal real property a 
governmentwide high-risk area, the administration added a Federal Asset 
Management Initiative to the PMA and the President signed an executive 
order aimed at addressing long-standing federal real property 
management issues. 

More recently, the Office of Management and Budget (OMB) has led an 
initiative to prompt agencies to develop detailed action plans for each 
area on our high-risk list. These plans are to identify specific goals 
and milestones to address and reduce the risks identified by us within 
each high-risk area. Further, OMB has encouraged agencies to consult 
with us regarding the problems our past work has identified, and the 
many recommendations for corrective actions they have made. For 
example, in cooperation with OMB, DOD has developed a plan to show 
progress toward the long-term goal of resolving problems and removing 
supply chain management from our list of high-risk areas within the 
department. DOD issued the first iteration of the plan in July 2005 
and, since then, has regularly updated it. Based on our review of the 
plan, we believe it is a good first step toward improving supply chain 
management in support of the warfighter although the department faces 
challenges and risks in successfully implementing its proposed changes 
across the department and measuring progress. Since our October 2005 
testimony before you, we have held monthly meetings with DOD and OMB 
officials to receive updates on the plan and gain a greater 
understanding of the initiatives DOD proposes to implement. Progress to 
date on other individual plans has varied, but this initiative offers 
the potential for helping to foster progress on long-needed 
improvements. Such concerted efforts by agencies and ongoing attention 
by OMB are critical; our experience over the past 15 years has shown 
that persistence and perseverance is required to fully resolve high- 
risk areas. 

The Congress, too, will continue to play an important role through its 
oversight and, where appropriate, through various legislative actions, 
particularly in addressing challenges in broad-based transformations. 
As I have repeatedly noted, the creation of a COO/CMO position in 
select agencies, especially the Department of Defense, could help to 
elevate attention on management issues and transformational change, 
integrate various key management and transformation efforts, and 
institutionalize accountability in leading these changes. I am pleased 
that you have both endorsed this concept by introducing legislation to 
create deputy secretary for management positions for the Departments of 
Defense and Homeland Security.[Footnote 21] I continue to believe that 
there is a strong need for such a senior leadership position to provide 
the continued focus and integrated approach required to address the 
significant and long-standing transformation and management challenges 
facing these departments. 

Over the past 13 months, your subcommittee alone has held 5 hearings 
relating to our high-risk areas, covering the list in total as well as 
individual areas in DOD, including personnel security clearances, 
supply chain management, as well as business systems modernization and 
overall business transformation. Together, committees and subcommittees 
in both houses have held more than 60 hearings since our last high-risk 
update report, involving 20 of the 25 areas on GAO's January 2005 high-
risk list. I have personally testified in many of these hearings. This 
level of oversight, coupled with related legislation, where 
appropriate, is very instrumental to making real and sustainable 
progress in these areas. 

Forward-looking Focus Needed: 

Addressing the important problems identified by our high-risk program 
will in many cases encompass the need for transformation and, for some 
challenges, require action by both the executive branch and the 
Congress. However, if we are going to meet the long-term fiscal 
challenge and other emerging challenges confronting the nation, we must 
also engage in a fundamental reexamination of what government does and 
how it does it, who does it, and how it gets financed. 

Although prompted by fiscal necessity, such a fundamental review of 
major program and policy areas can also serve the vital function of 
updating the federal government's programs and priorities to meet 
current and future challenges. While we should be striving to maintain 
a government that is free of waste, fraud, abuse, and mismanagement, it 
should also remain effective and relevant to a changing society--a 
government that is as free as possible of outmoded, duplicative, and 
ineffective commitments and operations. Many current federal programs 
and policies, in fact, were designed decades ago to respond to trends 
and challenges that existed at the time of their creation, and may no 
longer be well suited, designed, or targeted to address current 
national priorities. 

Our recent entry into a new century has helped to remind us of how much 
has changed in the past several decades--rapid shifts in the aging of 
our population, globalization of economic transactions, significant 
advances in technology, and changing security threats. If government is 
to effectively address these trends, it cannot accept its existing 
programs, policies, and activities as "givens." Outmoded, duplicative, 
and effective commitments and operations are an unnecessary burden on 
the present and future that can erode the capacity of our nation to 
better align its government with the needs and demands of a changing 
world and society. 

Last year, we pulled together our insights and previous work for the 
Congress in another report, entitled 21st Century Challenges: 
Reexamining the Base of the Federal Government ([Hyperlink,]). That report provides 
policymakers with a comprehensive compendium of those areas throughout 
government that could be considered ripe for reexamination and review. 
It includes a number of illustrative questions for the Congress and 
other policymakers to consider as they carry out their various 
constitutional responsibilities. These questions span a broad range of 
budget categories and federal operations, including discretionary and 
mandatory spending and tax policies and programs. 

Answering these questions and addressing the challenges raised in the 
21st century challenges report will invariably entail difficult 
political choices between competing programs that promise benefits to 
many Americans but are collectively unaffordable in the long run at 
current and expected revenue levels. We recognize that this kind of 
examination and the hard choices necessary to mitigate the risks 
inherent in conducting "business as usual" may take a generation to 
address. But the potential disruption from related changes can be 
lessened, and the options policymakers can consider will be greater, if 
the necessary policy changes are made sooner rather than later. 
However, in the final analysis, as you well know, only elected 
officials can decide whether, when, and how best to proceed to address 
these important issues. 

We hope that our reports on our high-risk program, as well as our 
report on 21st Century challenges, along with the follow-up work we are 
committed to doing for the Congress, will continue to be used by 
various congressional committees, such as yours, as you consider which 
areas of government to examine and act on. 

Mr. Chairman, Senator Akaka, and members of the subcommittee, this 
concludes my testimony. I would be happy to answer any questions you 
may have. 



[1] GAO, Determining Performance and Accountability Challenges and High 
Risks, GAO-01-159SP (Washington, D.C.: November 2000). 

[2] Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004, 
Pub. L. No. 108-264, 118 Stat. 712 (2004). 

[3] GAO, Flood Insurance: Challenges Facing the National Flood 
Insurance Program, GAO-03-606T (Washington, D.C.: Apr. 1, 2003). 

[4] GAO, National Flood Insurance Program: Actions to Address 
Repetitive Loss Properties, GAO-04-401T (Washington, D.C.: Mar. 11, 

[5] GAO, Federal Emergency Management Agency: Improvements Needed to 
Enhance Oversight and Management of the National Flood Insurance 
Program, GAO-06-119 (Washington, D.C.: Oct. 18, 2005). 

[6] GAO, Flood Map Modernization: Program Strategy Shows Promise, but 
Challenges Remain, GAO-04-417 (Washington, D.C.: Mar. 31, 2004). 

[7] Department of Homeland Security, Office of Inspector General, 
Office of Information Technology, Challenges in FEMA's Flood Map 
Modernization Program, OIG-05-44 (Washington, D.C.: September 2005). 

[8] American Institutes for Research, The National Flood Insurance 
Program's Mandatory Purchase Requirement: Policies, Processes, and 
Stakeholders (Washington, D.C.: March 2005). 

[9] GAO, Federal Emergency Management Agency: Improvements Needed to 
Enhance Oversight and Management of the National Flood Insurance 
Program, GAO-06-119 (Washington, D.C.: Oct. 18, 2005). 

[10] Federal Emergency Management Agency, Multi-Year Flood Hazard 
Identification Plan, Draft FY04-FY08, Version 1.0 (Washington, D.C.: 
November 2004). 

[11] Department of Homeland Security, Office of Inspector General, 
Office of Information Technology, Challenges in FEMA's Flood Map 
Modernization Program. 

[12] National Flood Insurance Reform Act of 1994, Pub. L. No. 103-325, 
§§ 501-584, 108 Stat. 2160, 2255-87 (1994). 

[13] GAO, Defense Acquisitions: Business Case and Business Arrangements 
Key for Future Combat System's Success, GAO-06-478T (Washington, D.C.: 
Mar. 1, 2006). 

[14] GAO, Defense Acquisitions: DOD Has Paid Billions in Award and 
Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66 
(Washington, D.C.: Dec. 19, 2005). 

[15] GAO, Contract Management: Opportunities to Improve Surveillance on 
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.: 
Mar.17, 2005). 

[16] GAO, Interagency Contracting: Problems with DOD's and Interior's 
Orders to Support Military Operations, GAO-05-201 (Washington, D.C.: 
Apr. 29, 2005), and Interagency Contracting: Franchise Funds Provide 
Convenience, but Value to DOD is Not Demonstrated, GAO-05-456 
(Washington, D.C.: July 29, 2005). 

[17] GAO, DOD Acquisition Outcomes: A Case for Change, GAO-06-257T 
(Washington, D.C.: Nov.15, 2005). 

[18] GAO, Hurricane Katrina: GAO's Preliminary Observations Regarding 
Preparedness, Response, and Recovery, GAO-06-442T (Washington D.C.: 
March 2006). 

[19] GAO, Risk Management: Further Refinements Needed to Assess Risks 
and Prioritize Protective Measures at Ports and Other Critical 
Infrastructure, GAO-06-91 (Washington D.C.: Dec. 15, 2005). 

[20] GAO, Defense Management: Additional Actions Needed to Enhance 
DOD's Risk-Based Approach for Making Resource Decisions, GAO-06-13 
(Washington, D.C.: Nov. 15, 2005). 

[21] Senators Ensign, Akaka, and Voinovich introduced S. 780 on April 
14, 2005, to create a Deputy Secretary of Defense for Management, who 
would report to the Secretary of Defense and serve for a term of 7 
years with an annual performance agreement. Senators Akaka and 
Voinovich introduced S. 1712 on September 15, 2005, to create a Deputy 
Secretary of Homeland Security for Management, who would report to the 
Secretary of Homeland Security and serve for a term of 5 years with an 
annual performance agreement.