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United States General Accounting Office:

GAO:

Testimony:

Before the Committee on Government Reform:

U.S. House of Representatives:

For Release on Delivery:

Expected at 10:00 a.m. EDT Wednesday, July 16, 2003:

FEDERAL BUDGET:

Opportunities for Oversight and Improved Use of Taxpayer Funds:

Statement of Paul L. Posner:

Managing Director for Federal Budget and Intergovernmental Relations 
Issues, Strategic Issues:

GAO-03-1029T:

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. However, because 
this work may contain copyrighted images or other material, permission 
from the copyright holder may be necessary if you wish to reproduce 
this material separately.

Mr. Chairman, Mr. Waxman, members of the Committee:

It is a pleasure to be here today to assist you in what Comptroller 
General Walker has described as one of your important obligations--to 
exercise prudence and due care in connection with taxpayer funds. No 
government should waste its taxpayers' money, whether we are operating 
during a period of budget surpluses or deficits. Further, it is 
important for everyone to recognize that fraud, waste, 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 that 
deserve them and avoid abuse of taxpayer funds by preventing such 
diversions. Beyond preventing obvious abuse, government also has an 
obligation to modernize its priorities, practices, and processes so 
that it can meet the demands and needs of today's changing world. More 
broadly, the federal government must reexamine the entire range of 
policies and programs--entitlements, discretionary, and tax 
incentives--in the context of the 21ST century.

Periodic reexamination and revaluation of government activities has 
never been more important than it is today. Our nation faces long-term 
fiscal challenges. Increased pressure also comes from world events: 
both from the recognition that we cannot consider ourselves "safe" 
between two oceans--which has increased demands for spending on 
homeland security--and from the U.S. role in an increasingly 
interdependent world. And government faces increased demands from the 
American public for modern organizations and workforces that are 
responsive, agile, accountable and responsible.


Efforts to assure prudent use of taxpayer funds, efforts to guard 
against fraud, waste, abuse and mismanagement, and efforts to improve 
economy, efficiency and effectiveness must be broad, encompassing those 
programs subject to annual appropriations, mandatory programs, and tax 
preferences/tax incentives.

Direct, or mandatory, spending programs are by definition assumed in 
the baseline and not automatically subject to annual congressional 
review as are appropriated discretionary programs. Nonetheless, a 
periodic reassessment of these programs, as well as tax incentives, is 
critical to achieving fiscal discipline in the budget as a whole. 
Moreover, such a review can help ascertain whether these programs are 
protected from the risk of fraud, waste and abuse and are designed to 
be as cost effective and efficient as possible.

As you know, the Budget Resolution directs GAO to prepare a report 
identifying "instances in which the committees of jurisdiction may make 
legislative changes to improve the economy, efficiency, and 
effectiveness of programs within their jurisdiction." This report will 
be based on examples drawn from GAO's recent work highlighting programs 
and operations where improvements could be made to address performance 
issues that may have budgetary consequences. My testimony draws in part 
on some of the items that will be included in that report.

As Mr. Walker did before the House Budget Committee last month, today I 
want to talk about program reviews, oversight, and stewardship of 
taxpayer funds in three tiers:

First, it is important to deal with areas vulnerable to fraud, waste, 
abuse and mismanagement. Payments to ineligibles drain resources that 
could otherwise go to the intended beneficiaries of a program. Everyone 
should be concerned about the diversion of resources and subsequent 
undermining of program integrity.

Second, and more broadly, policymakers and managers need to look at 
ways to improve the economy, efficiency and effectiveness of federal 
programs and specific tax expenditures. Even where we agree on the 
goals of programs, numerous opportunities exist to streamline, target 
and consolidate to improve their delivery. This means looking at 
program consolidation, at overlap and at fragmentation. For example, it 
means tackling excess federal real property--whether at home or abroad. 
It means improved targeting in both spending programs and tax 
incentives--in some cases, spreading limited funds over a wide 
population or beneficiary group may not be the best approach.

Finally, a fundamental reassessment of government programs, policies, 
and activities can help weed out programs that are outdated, 
ineffective, unsustainable, or simply a lower priority than they used 
to be. In most federal mission areas--from low-income housing to food 
safety to higher education assistance--national goals are achieved 
through the use of a variety of tools and, increasingly, through the 
participation of many organizations, such as state and local 
governments and international organizations, that are beyond the direct 
control of the federal government. Government cannot accept as "givens" 
all of its existing major programs, policies, and operations. A 
fundamental review of what the federal government does, how it does it, 
and in some cases, who does the government's business will be required, 
particularly given the demographic tidal wave that is starting to show 
on our fiscal horizon.

Addressing Vulnerabilities to Fraud, Waste, Abuse and Mismanagement:

Programs and functions central to national goals and objectives have 
been hampered by daunting financial and program management problems, 
exposing these activities to fraud, waste and abuse. These weaknesses 
have real consequences with large stakes that are important and visible 
to many Americans. Some of the problems involve the waste of scarce 
federal resources. Other problems compromise the ability of the federal 
government to deliver critically needed services, such as ensuring 
airline safety and efficiently collecting taxes. Still others may 
undermine government's ability to safeguard critical assets from theft 
and misuse.

In recent years, GAO's work across the many government programs and 
operations has highlighted threats to the integrity of programs which 
prompt potential for fraud, waste and abuse. As the next sections 
illustrate, much of our work for the Congress in fact is dedicated to 
helping redesign programs and improve management to address these long 
standing problems, in areas ranging from uncollected taxes, both 
corporate and individual, to major entitlement programs.

In 1990, GAO began a program to report on government operations we 
identified as "high-risk." This label has helped draw attention to 
chronic, systemic performance and management shortfalls threatening 
taxpayer dollars and the integrity of government operations. Over the 
years GAO has made many recommendations to improve these high-risk 
operations. We discovered that the label often inspired corrective 
action--indeed 13 areas have come off the list since its inception. For 
each of these areas, we focus on (1) why the area is high-risk; (2) the 
actions that have been taken and that are under way to address the 
problem since our last update report and the issues that are yet to be 
resolved; and (3) what remains to be done to address the risk.

In January of this year we provided an update for the 108TH Congress, 
giving the status of high-risk areas included in our last report 
[January 2001] and identifying new high-risk areas warranting attention 
by the Congress and the administration.[Footnote 1] GAO's 2003 high-
risk list is shown in Attachment I. 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.

In addition to perseverance by the administration in implementing 
needed solutions, we have noted that continued congressional interest 
and oversight, such as that exemplified by this hearing today are of 
crucial importance. The administration has looked to our 
recommendations in shaping government-wide initiatives such as the 
President's Management Agenda, which has at its base many of the areas 
we have previously designated as high-risk.

Clearly progress has been made in addressing most of the areas on our 
current high-risk list, both through executive actions and 
congressional initiatives. However, many of these problems and risks 
are chronic and long standing in nature and their ultimate solution 
will require persistent and dedicated efforts on many fronts by many 
actors. Some will require changes in laws to simplify or change rules 
for eligibility, provide improved incentives or to give federal 
agencies additional tools to track and correct improper payments. 
Continued progress in improving agencies' financial systems, 
information technology resources and human capital will be vital in 
attacking and mitigating risks to federal program integrity. Some areas 
may indeed require additional investments in people and technology to 
provide effective information, oversight and enforcement to protect 
programs from abuse.

Ultimately, a transformation will be needed in the cultures and 
operations of many agencies to permit them to manage risks and foster 
the kind of sustained improvements in program operations called for. 
Continued persistence and perseverance in addressing the high-risk 
areas will ultimately yield significant benefits for the taxpayers over 
time. Finding lasting solutions offers the potential to achieve 
savings, improved service and strengthened public trust in government.

I will now address some specific areas and examples from both our high-
risk work and other program reviews that illustrate both the problems 
facing us and the opportunities for congressional and executive actions 
to better safeguard taxpayer funds.[Footnote 2]

Improper Payments:

Improper payments include inadvertent errors, such as duplicate 
payments and miscalculations; payments for unsupported or inadequate 
supported claims; payments for services not rendered; payments to 
ineligible beneficiaries; and payments resulting from outright fraud 
and abuse by program participants and/or federal employees. Recently, 
agencies' financial statements also have begun to identify and measure 
the wide range of improper payments involved in many activities 
throughout government. Agency financial statements for both fiscal 
years 2002 and 2001 identified improper payment estimates of 
approximately $20 billion. OMB recently testified that the amount of 
improper payments was closer to $35 billion annually for major benefit 
programs. This range may be indicative of the fact that it is hard to 
get a handle on the precise total. Furthermore, as significant as these 
amounts are, they do not represent a true picture of the magnitude of 
the problem governmentwide because they do not consider other 
significant but smaller programs and other types of agency activities 
that could result in improper payments. In reviewing fiscal year 2002, 
financial statements of the 24 CFO Act agencies, we found references to 
improper payments in 17 agencies and 27 programs--and a variety of 
program activities. Unfortunately, not all of the agencies provided 
information on their estimate of the amount of such payments.

Many of these problems can most effectively be addressed by individual 
programs and the agencies that manage them. However, crosscutting 
approaches can also be essential to making progress. For example, 
enhanced sharing of data across programs and purposes can help to 
verify program eligibility and provide improved controls over payments. 
Access to IRS taxpayer information is available to many programs but 
not all. Such access could have helped the Department of Education 
prevent some of the $100 million in excess payments under the Pell 
Grant awards in 2000 stemming from underreporting of income by 
recipients. Computer matching enabled the SSI program and Food Stamp 
and TANF programs in certain states to identify over 110,000 
beneficiaries who are fugitive felons ineligible for assistance, 
enabling estimated cost savings of over $96 million for SSI alone. 
However, most states administering TANF and food stamps, as well as 
HUD, were not conducting these kinds of matches.

Collection of Unpaid Taxes:

Ensuring that taxpayers meet their tax obligations under an 
increasingly complex tax code has long presented the Internal Revenue 
Service (IRS) with daunting challenges. Although the majority of 
taxpayers voluntarily and timely pay the taxes they owe, regrettably 
high levels of noncompliance by some taxpayers persist. Some 
noncompliance is intentional and may be due to outright fraud and the 
use of abusive tax shelters or schemes. Some noncompliance stems from 
unintentional errors and taxpayers' misunderstanding of their 
obligations. Regardless of the cause, we have designated the collection 
of unpaid taxes--including detecting noncompliance and collecting taxes 
due but not paid--as a high-risk area because of the potential revenue 
losses and the threat to voluntary compliance.

Collecting taxes due includes both compliance programs, like audits, 
that identify those who owe more than they self-report and collection 
programs that seek payment of taxes assessed but not timely paid. 
However, IRS compliance and collections programs have seen larger 
workloads, less staffing, and fewer cases closed per employee. For the 
last several years, Congress and others have been concerned that the 
declines in IRS's enforcement programs are eroding taxpayers' 
confidence in the fairness of our tax system putting at risk their 
willingness to voluntarily comply with the tax laws.

The number of tax returns increases every year. Between 1993 and 2002, 
the number of individual returns filed went from 114.7 million to 
approximately 130 million--a 13 percent increase over those 10 years. 
IRS projects the number of total individual returns filed will be 132.3 
million in 2003 and continue to increase at an annual rate of 1.5 
percent until 2009. Such a rate of increase would lead to 145.3 million 
total individual returns filed in 2009. Returns from businesses and 
other entities have also increased substantially.

While the number of tax returns has increased, key compliance program 
rates have declined. In testimonies and reports, GAO has highlighted 
large and pervasive declines in IRS's compliance programs. These 
programs, not all of which have seen declines, include computerized 
checks for nonfiling and underreported income as well as audits of both 
individual taxpayers and business entities. Between 1996 and 2001, key 
programs generally experienced growing workloads, decreased staffing, 
and decreases in the number of cases closed per employee. Figure 1 
shows the decline in audit rates for different types of taxpayers.

Figure 1: Change in Percent of Returns Audited, 1996 - 2001:

[See PDF for image]

[End of figure]

IRS collections programs are also increasingly stressed. As we reported 
in May 2002, between fiscal years 1996 and 2001 trends in the 
collection of delinquent taxes showed almost universal declines in 
collection program performance, in terms of coverage of workload, cases 
closed, direct staff time used, productivity, and dollar of unpaid 
taxes collected.[Footnote 3] Although the number of delinquent cases 
assigned to collectors went down during this period, the number of 
collections cases closed declined more rapidly, creating an increasing 
gap. During that 6-year period, the gap between the new collection 
workload and collection cases closed grew at an average annual rate of 
about 31 percent.

Uncollected Taxes:

By the end of fiscal year 2002, IRS had deferred collection action on 
about one out of three collection cases and had an inventory of $112 
billion of known unpaid taxes with some collection potential.

A key to reversing these trends and ensuring compliance with the tax 
laws is continuing to modernize IRS's management and systems. Such 
change is required across IRS. IRS needs to acquire and analyze data on 
noncompliance by continuing to implement the National Research Program 
as planned. IRS needs to reengineer it compliance and collection 
programs. Reengineering depends, in turn, on successfully modernizing 
business information systems by implementing recommended management 
controls. IRS needs to implement its planned centralized cost 
accounting system in order to strengthen controls over unpaid tax 
assessments. Because of their magnitude, these efforts are a major 
management challenge. IRS has tried to increase enforcement staffing. 
However, the hiring of additional staff has been delayed by factors 
such as unbudgeted cost increases.

Recoup Delinquent Taxes from Those Benefiting from Federal Programs:

Many taxpayers, both individuals and businesses, who owe the federal 
government billions of dollars in delinquent taxes, are receiving 
billions of dollars in federal payments annually. In addition to SSA 
benefit payments, these delinquent taxpayers may be paid federal 
civilian retirement payments and federal civilian salaries, payments on 
federal contracts, and Small Business Administration loans.

IRS and federal payment records indicate that nearly one million 
taxpayers who were receiving some type of federal payments owed about 
$26 billion in delinquent taxes as of February 2002. To help the IRS 
collect these delinquent tax debts, provisions in the Taxpayer Relief 
Act of 1997 gave IRS authority to continuously levy[Footnote 4] up to 
15 percent of certain federal payments made to delinquent 
taxpayers.[Footnote 5] Payments subject to IRS' continuous levy program 
include Social Security, federal salary and retirement payments, and 
federal vendor payments. According to IRS, the program resulted in 
collecting over $60 million in fiscal year 2002 by directly levying 
federal payments. However, not all agencies have been included in the 
continuous levy program.[Footnote 6] When we reviewed three of these we 
found, that as of June 30, 2000, about 70,400 individuals and 
businesses that received about $1.9 billion in federal payments 
collectively from three agencies owed over $1 billion in federal taxes. 
IRS has either tested or commenced with levies of vendors or employees 
for the Department of Defense and the U.S. Postal Service. IRS has not 
begun to levy payments made to Centers for Medicare and Medicaid 
Services' vendors. In another report we found that IRS blocks many 
eligible delinquent accounts from being included in the Federal Payment 
Levy Program, missing an opportunity to gather information on which 
debtors are receiving federal payments.[Footnote 7] IRS officials 
imposed these blocks because of concerns that the potential volume of 
levies--about 1.4 million taxpayer accounts--would disrupt ongoing 
collection activities. However we estimate that about 112,000 would 
actually qualify for levy. These taxpayers were collectively receiving 
about $6.7 billion in federal payments and owed about $1.5 billion in 
delinquent taxes. In January 2003, IRS unblocked and began matching 
delinquent taxpayer accounts identified as receiving a federal salary 
or annuity payment. IRS officials will not unblock the remaining 
delinquent accounts until sometime in 2005.

In addition, OMB circular A-129, revised, directs agencies to determine 
whether applicants for federal credit programs are delinquent on any 
federal debt--including tax debt--and to suspend processing of credit 
applications until the applicant pays the debt or enters into a payment 
plan. Unfortunately, these polices have not been effective in 
preventing the disbursement of federal dollars to individuals and 
businesses with delinquent taxes. In order to fully realize this 
benefit, the Congress could enact legislation codifying the provisions 
of OMB Circular A-129, as revised, that relate to this matter. A key 
aspect of this legislation would be to ensure that IRS's efforts to 
modernize its business systems are successful in enabling it to 
generate timely and accurate information on the taxpayer's status to 
assist other agencies in making determinations about eligibility for 
federal benefits and payments.

The Medicare Program:

The sheer size and complexity of the Medicare program makes it highly 
vulnerable to fraud, waste and abuse. In fiscal year 2002, Medicare 
paid about $257 billion for a wide variety of inpatient and outpatient 
health care services for over 40 million elderly and disabled 
Americans. To help administer claims the Centers for Medicare & 
Medicaid Services (CMS) contracts with 38 health insurance companies to 
process about 900 million claims submitted each year by over 1 million 
hospitals, physicians, and other health care providers. Although CMS 
has made strides, much remains to be done. Today I will note a few 
specific areas in which we have recommended actions:

Reducing improper payments: Since 1996, annual audits by the Department 
of Health and Human Services' Office of the Inspector General have 
found that Medicare contractors have improperly paid claims worth 
billions of dollars--$12.3 billion in fiscal year 2002 alone. CMS has 
been working to better hold individual contractors accountable for 
claims payment performance and help them target remedial actions to 
address problematic billing practices.

Monitoring managed care plans: In 2001 auditors found that 59 of 80 
health plans had misreported key financial data or had accounting 
records too unreliable to support their data, but CMS did not have a 
plan in place to resolve these issues.

Improving financial management processes: Despite a "clean" opinion on 
its financial statements, CMS financial systems and processes do not 
routinely generate information that is timely or reliable and do not 
ensure confidentiality of sensitive information.

Collecting debt: At the end of fiscal year 1999, over $7 billion of 
debt had accumulated on contractors' books as accounts receivable that 
were neither collected nor written off. While Medicare contractors have 
referred eligible delinquent debt to the Treasury for collection, CMS 
continues to face challenges in ensuring that contractors consistently 
make these referrals and is working to address this.

Enhancing program oversight: Program safeguard activities, such as the 
Medicare Integrity Program, have historically produced savings--in the 
past CMS has estimated a return of over $10 for every dollar spent in 
this area. While funding for the Medicare Integrity Program has 
increased, in 2002 it remained below comparable levels in the previous 
decade, adjusted for inflation. Moreover, freeing the Medicare program 
to directly choose contractors used to administer program payments on a 
competitive basis would enable the program to benefit from the 
advantages conferred by competition.

Reducing excessive payments for services and products: These hurt not 
only the taxpayers but also the program's beneficiaries who are 
generally liable for co-payments equal to 20 percent of Medicare's 
approved fee. Excessive payments have been found for both medical 
products and outpatient drugs.

Medical products--Medicare's payment approaches lack the flexibility to 
keep pace with market changes. Payments for medical equipment and 
supplies are through fee schedules that remain tied to suppliers' 
historical charges to the program. Evidence from two competitive 
bidding projects suggests that competition might provide a tool that 
facilitates setting more appropriate payment rates that result in 
program savings.

Outpatient drugs--Medicare pays list prices set by drug manufacturers, 
not prices providers actually pay. In September 2001, we reported that 
in 2000 Medicare paid over $1 billion more than other purchasers for 
outpatient drugs that the program covers. CMS has not acted upon our 
recommendations in this area.[Footnote 8]

:

Medicare Excessive Payments: Outpatient Drugs:

* In some cases, 
Medicare's payments were so high that the beneficiaries' co-payments 
alone exceeded the purchase price available to the provider.

* In 2001, 

Medicare paid $3.34 per unit for Ipratropium bromide although it 
is widely available for $0.77 per unit;

Medicare paid $588 for 
leuprolide acetate although it was widely available at a cost of $510.

The Medicaid Program:

Medicaid, which pays for both acute health care and long-term care 
services for over 44 million low-income Americans, has been subject to 
waste and exploitation. In fiscal year 2001, federal and state Medicaid 
expenditures totaled $228 billion. The federal share was about 57 
percent, representing 7 percent of all federal outlays. Medicaid is the 
third largest social program in the federal budget (after Social 
Security and Medicare) and the second largest budget item for most 
states (after education).

CMS, in the Department of Health and Human Services (HHS) is 
responsible for administering the program at the federal level, while 
the states administer their respective program's day-to-day operations. 
The challenges inherent in overseeing a program of Medicaid's size, 
growth, and diversity, combined with the open-ended nature of the 
program's federal funding, puts the program at high risk. Inadequate 
fiscal oversight has led to increased and unnecessary federal spending. 
GAO has made recommendations in a number of areas, such as:

Curb state financing schemes: Such schemes inappropriately increase the 
federal share of Medicaid expenditures. For example, some states have 
created the illusion that they made large Medicaid payments to 
providers while in reality they only made temporary electronic funds 
transfers that the providers were required to return to them. In some 
cases, states have used federal payments for purposes other than 
Medicaid. Although Congress and CMS have repeatedly acted to curtail 
abusive financing schemes, states have developed new variations. Each 
has the same result: some of the state's share of program expenditures 
is shifted to the federal government. Curbing abusive state practices 
is of increasing importance today since states are under budgetary 
pressures. Experience shows that some states are likely to look for 
other creative means to supplant state financing, making a compelling 
case for the Congress and CMS to sustain vigilance over federal 
Medicaid payments.

Curbing states' exploitative practices can yield substantial savings. 
CMS' 2001 regulation to close one significant loophole that was being 
increasingly used by states to generate excessive federal Medicaid 
payments, referred to as the upper payment limit, is estimated to save 
the federal government $55 billion over 10 years, and a related 2002 
CMS regulation is estimated to yield an additional $9 billion over 5 
years. To reduce these and other exploitative schemes and to better 
ensure that federal funds were used to reimburse providers only for 
Medicaid-covered services actually provided to eligible beneficiaries, 
we recommended in 1994 that the Congress enact legislation to prohibit 
making Medicaid payments to a government-owned facility in excess of 
the facility's costs. To date, no action has been taken.

The figure below shows one state's arrangement to increase federal 
Medicaid payments inappropriately.

[See PDF for image]

[End of figure]


Improve federal and state agency controls over payments: CMS does not 
have a sound method for states to identify areas at high risk for 
improper Medicaid payments. Also, in our June 2001 review, we noted 
that no state requested the full amount of federal funds available for 
antifraud efforts due to a reluctance to put up state matching funds.

HUD Single-Family Mortgage Insurance and Rental Assistance Programs:

HUD manages about $550 billion in insurance and $19 billion per year in 
rental assistance. The department relies on a complex network of 
thousands of third parties to manage their risk. We have made 
recommendations in a number of areas:

:

Reducing rental subsidy overpayments: HUD estimates that rental subsidy 
overpayments in fiscal year 2000 were $2 billion--over 10 percent of 
total program expenditures. A significant portion of this overpayment 
is attributable to tenants' underreporting of income. We have 
recommended steps to improve data sharing between HUD and the 
Department of Health and Human Services to help identify unreported 
income before rental subsidies are provided.[Footnote 9] HUD needs to 
ensure that its rental housing assistance programs operate effectively 
and efficiently, specifically that assistance payments are accurate, 
recipients are eligible, assisted housing meets quality standards, and 
contractors perform as expected.

Reduce risk of losses in the single-family housing program: HUD also 
needs to reduce the risk of losses in its single-family housing program 
due to fraud, loan defaults, and poor management of foreclosed 
properties. Ineligible buyers sometimes fraudulently obtain loans, or 
loans are made on properties actually worth less than the loan amount, 
increasing the risk of default and losses. In addition, foreclosed 
properties are not always secured and maintained in a timely fashion 
and their condition can deteriorate, resulting in lower sales prices 
and limiting FHA's ability to recover its costs. HUD's IG has reported 
that fraud in the origination of mortgages of single-family properties 
continues to be the most pervasive problem uncovered by its 
investigations. We have reported on weaknesses in HUD's oversight of 
mortgage lenders and have made recommendations aimed at strengthening 
HUD's processes for approving and monitoring lenders and holding them 
accountable for poor performance.[Footnote 10] We have also recommended 
that HUD adopt a foreclosure process more like that used by other 
entities to better ensure that properties do not deteriorate and that 
it recoups more of its losses when the houses are sold.[Footnote 11] 
HUD needs to improve the management and oversight of its single-family 
housing programs to reduce its risk of financial losses.

Fraud in FHA Program:

* A joint investigation between HUD's Inspector 
General and the Federal Bureau of Investigation uncovered a 20-person 
property-flipping scheme in Chicago, Illinois, that resulted in 21 
indictments and convictions and 12 jail sentences.

* The use of 
fraudulent documentation to qualify borrowers for FHA-insured mortgages 
had led to criminal indictments and convictions in several other 
communities.

Improve acquisition management and monitoring of contractor 
performance: Contractors are responsible for managing and disposing of 
HUD's inventory of single-family and multifamily properties-properties 
that had a combined value of about $3 billion as of September 30, 2001. 
Our review of HUD's files and disbursements indicates that its 
oversight processes have not identified instances in which contractors 
were not performing as expected. Weaknesses in HUD's acquisition 
management limit its ability to readily prevent, identify, and address 
contractor performance problems. Without a systematic approach to 
oversight and adequate on-site monitoring, the department's ability to 
identify and correct contractor performance problems and hold 
contractors accountable is reduced. The resulting vulnerability limits 
HUD's ability to assure that it is receiving the services for which it 
pays.

Improving Economy, Efficiency, Effectiveness:

Important as safeguarding funds from fraud, waste, abuse and 
mismanagement is, I believe that for long-lasting improvements in 
government performance the federal government needs to move to the next 
step: to widespread opportunities to improve the economy, efficiency 
and effectiveness of existing federal goals and program commitments. 
The basic goals of many federal programs--both mandatory and 
discretionary--enjoy widespread support. That support only makes it 
more important for us to pay attention to the substantial opportunities 
to improve their cost effectiveness and the delivery of services and 
activities. No activity should be exempt from some key questions about 
its design and management.

Key Questions for Program Oversight 

* Is the program targeted appropriately? 

* Does the program duplicate or even work at cross purposes with 
related programs and tools? 

* Is the program financially sustainable and are there opportunities 
for instituting appropriate cost sharing and recovery from nonfederal 
parties including private entities that benefit from federal activities? 

* Can the program be made more efficient through reengineering or 
streamlining processes or restructuring organizational roles and responsibilities? 

* Are there clear goals, measures and data with which to track 
progress, benefits and costs?.

GAO's work illustrates numerous examples where programs can and should 
be changed to improve their impact and efficiency. Today I want to 
touch on some of these areas and highlight some significant 
opportunities for program changes that promise to improve their cost 
effectiveness. I recognize that many of these will prompt debate--but 
that debate is both necessary and healthy.

Targeting:

Our work has shown that scarce federal funds could have a greater 
impact on program goals by improving their targeting to places or 
people most in need of assistance. Poorly targeted funding can result 
in providing assistance to recipients who have the resources and 
interest to undertake the subsidized activity on their own without 
federal financing. Moreover, lax eligibility rules and controls can 
permit scarce funds to be diverted to clients with marginal needs for 
program funds.

Grant programs: Many federal grant programs with formula distributions 
to state and local governments are not well targeted to places with 
high needs but low fiscal capacity. As a result, recipients in 
wealthier areas may enjoy higher levels of federal funds than harder 
pressed areas. Better targeting of grants offers a strategy to reduce 
federal outlays by concentrating reductions in wealthier communities 
with comparatively fewer needs and greater capacity to finance services 
from their own resources. For such mandatory programs as Medicaid, 
Foster Care and Adoption Assistance, reimbursement formulas can be 
changed to better reflect relative need, geographic differences in the 
cost of services and state bases.

Flood insurance losses: Repetitive flood losses are one of the major 
factors contributing to the financial difficulties facing the National 
Flood Insurance Program. Approximately 45,000 buildings currently 
insured under the National Flood Insurance Program have been flooded on 
more than one occasion and have received flood insurance claims 
payments of $1,000 or more for each loss. These repetitive losses 
account for about 38 percent of all program claims historically 
(currently about $200 million annually) even though repetitive-loss 
structures make up a very small portion of the total number of insured 
properties--at any one time, from 1 to 2 percent. The cost of these 
multiple-loss properties over the years to the program has been $3.8 
billion. One option that would increase savings would be for FEMA to 
consider eliminating flood insurance for certain repeatedly flooded 
properties.

Medicare Incentive Payment Program: The Medicare Incentive Payment 
program was established in 1987 to provide a bonus payment for 
physicians to provide primary care in underserved areas. However, 
specialists receive most of the program dollars, even though primary 
care physicians have been identified as being in short supply. 
Shortages of specialists, if any, have not been determined. Moreover, 
since 1987 the Congress generally increased reimbursement rates for 
primary care services and reduced the geographic variation in physician 
reimbursement rates. HHS has acknowledged that structural changes to 
this program are necessary to better target incentive payments to rural 
areas with the highest degree of shortage. For example, if the 
program's intent is to improve access to primary care services in 
underserved rural areas, the bonus payments should be targeted and 
limited to physicians providing primary care services to underserved 
populations in rural areas with the greatest need.

Federal Employees' Compensation Act: The formula for determining 
workers' compensation benefits for disabled federal employees replaced 
more than 100 percent of their estimated take-home pay for 30 percent 
of those included in our analyses, and over 90 percent for another 40 
percent of beneficiaries. The high replacement rates for this tax-free 
benefit stem from the use of gross pay in the formula rather than the 
use of a base that subtracts federal and state taxes, as some state 
programs do. Such benefit levels may potentially discourage employees 
from returning to work. Savings could be achieved if the formula were 
revised to subtract taxes from gross pay.

Consolidation:

GAO's work over the years has shown that numerous program areas are 
characterized by significant program overlap and duplication. In 
program area after program area, we have found that unfocused and 
uncoordinated programs cutting across federal agency boundaries waste 
scarce resources, confuse and frustrate taxpayers and beneficiaries and 
limit program effectiveness.

Food safety: The federal system to ensure the safety and quality of 
the nation's food is inefficient and outdated. The Food Safety and 
Inspection Service within USDA is responsible for the safety of meat, 
poultry and eggs and some egg products, while the Food and Drug 
Administration (FDA) under HHS is responsible for the safety of most 
other foods. USDA, FDA and ten other federal agencies administer over 
35 different laws for food safety. The current system suffers from 
overlapping and duplicative inspections, poor coordination and 
inefficient allocation of resources. The Congress may wish to consider 
consolidating federal food safety agencies under a single risk-based 
food safety inspection agency with a uniform set of food safety laws.

Grants for homeland security: GAO identified at least 16 different 
grant programs that can be used by the nation's first responders to 
address homeland security needs. These grants are currently provided 
through two different directorates within the Department of Homeland 
Security, the Department of Justice, and the Department of Health and 
Human Services and serve state governments, cities and localities, 
counties, and others. Multiple fragmented grant programs create a 
confusing and administratively burdensome process for state and local 
officials and complicate their efforts to better coordinate 
preparedness and response to potential terrorist attacks across the 
wide range of specialized agencies and programs. In addressing the 
fragmentation prompted by the current homeland security grant system, 
Congress should consider consolidating separate categorical grants into 
a broader purpose grant with national performance goals defining 
results and perhaps standards expected for the state and local 
partnership.

Rural housing assistance: USDA and HUD both provide assistance for 
rural housing, targeting some of the same kinds of households in the 
same markets. The programs of both agencies could be merged, using the 
same network of lenders. A consolidation of these programs building off 
the best practices of both programs would improve the efficiency with 
which the federal government delivers rural housing programs.

Department of Veterans Affairs (VA) food & laundry services: VA 
provides inpatient food services and laundry processing for thousands 
of inpatients a day in hospitals, nursing homes, and domiciliaries. As 
of November 2000, VA had consolidated 28 of its food production 
locations into 10, begun using less expensive Veterans Canteen Service 
workers in 9 locations and contracted out in 2 locations. For laundry 
services, VA had consolidated 116 of its laundries into 67 locations 
and used competitive sourcing to contract with the private sector in 
other locations. VA has the potential to further reduce its inpatient 
food service and laundry costs. For example, VA could consolidate food 
production locations within a 90-minute driving distance of each other 
and laundry locations within a 4-hour driving distance of each other.

USDA: Common Administrative Functions, County Offices:

* Common administrative functions--In the mid 1990s, USDA began a 
reorganization and modernization effort targeted at achieving greater 
economy and efficiency and better customer service by the Farm Service 
Agency, the Natural Resources & Conservation Service, and the agencies 
in the Rural Development mission. However, despite the agencies' 
collocation of county offices, little has changed in how the three 
agencies serve their customers. USDA has made substantial progress in 
deploying personal computers and a telecommunications network to link 
its service centers. USDA could do more to combine agencies' support 
functions, such as legal and legislative affairs and public information 
into a single office.

* County office consolidation--USDA's field office structure dates back 
to the 1930s. In 1933 the U.S. had more than 6 million farmers; today 
the number of farms in the U.S. is less than 2 million, and a small 
fraction of these produce more than 70 percent of the nation's 
agricultural output. As the client base for USDA programs changes and 
technology offers opportunities for program delivery efficiencies, USDA 
needs to consider alternative program delivery approaches. Although the 
USDA has closed over 1000 county offices, an agency report in September 
2001 said, "Further actions are necessary to ensure that the USDA farm 
service structure is appropriately sized, configured and located…":

Cost Recovery:

The allocation of costs that once made sense when programs were created 
needs to be periodically reexamined to keep up with the evolution of 
markets. In some cases, private markets and program beneficiaries can 
play greater roles in financing and delivery of program services.

User charges and fees: Greater opportunities exist to charge users of 
federal programs across a number of areas to better reflect the full 
costs of services provided to particular users or beneficiaries. For 
example, the fees paid by utilities to pay for the costs of storage for 
high-level radioactive wastes have not changed since 1983, making the 
fund insufficient to cover increased costs due to inflation. 
Registration fees charged to aircraft owners by the Federal Aviation 
Administration have not changed since 1968, resulting in over $6 
million in lost revenue for the agency. Federal food inspection 
agencies do not recover the costs of inspections for meat, poultry, 
domestic foods and processing facilities; Agriculture Department 
inspection agencies recovered only $403 million of the $1.3 billion 
they spent in 2002 for these purposes.

Child support enforcement: The Child Support Enforcement Program is 
to strengthen state and local efforts to obtain child support for both 
families eligible for Temporary Assistance for Needy Families (TANF) 
and non-TANF families. From fiscal year 1984 through 1998, non-TANF 
caseloads and costs rose about 500 percent and 1200 percent, 
respectively. While states have the authority to fully recover the 
costs of their services, states have charged only minimal application 
and service fees for non-TANF clients, doing little to recover the 
federal government's 66 percent share of program costs. In fiscal year 
1998, for example, state fee practices returned about $49 million of 
the estimated $2.1 billion spent to provide non-TANF services. To 
defray some of the costs of child support programs, Congress could 
require that mandatory application fees should be dropped and replaced 
with a minimum percentage service fee on successful collections for 
non-TANF families.

Fannie Mae and Freddie Mac: These enterprises are privately-owned 
corporations chartered to enhance the availability of mortgage credit 
across the nation. HUD is charged with mission oversight 
responsibilities for the enterprises. Other federal organizations 
responsible for regulating government-sponsored enterprises are 
financed by assessments on the regulated entities. However, HUD's 
mission oversight expenditures are funded with taxpayer dollars through 
HUD's appropriations. Requiring Fannie Mae and Freddie Mac to reimburse 
HUD for mission oversight expenditures would not only result in 
budgetary savings but could also enable HUD to strengthen its oversight 
activities by for example dedicating new resources to verify housing 
goal data.

Water subsidies: Federal water programs to promote efficient use of 
finite water resources for the nation's agricultural and rural water 
systems have been used to provide higher subsidies than Congress may 
have intended. Some farmers have reorganized large farming operations 
into multiple, smaller landholdings to be eligible to receive 
additional federally subsidized irrigation water. However, due to the 
vague definition of the term "farm," the flow of federally subsidized 
water to land holdings above the law's 960-acre limit has not been 
stopped, and the federal government is not collecting revenues to which 
it is entitled under the law. In addition, Interior Department studies 
have shown that some farmers received the water subsidy for using 
irrigated water and USDA subsidies for crop production. Congress could 
consider collecting the full costs of subsidized federal water for 
large farms and/or restructuring the subsidies for crops produced with 
federally subsidized water.

Governmentwide economy and efficiency: the case of federal real 
property:

Beyond program management, there are governmentwide areas where major 
savings could come from improving economy, efficiency and 
effectiveness. Today I would like to highlight one GAO thinks is so 
important that we added it to the high-risk list--the management of 
federal real property.

Excess and underused property and deteriorating facilities present a 
real challenge--but also an opportunity to reap great rewards in terms 
of improved structure and savings for the federal government's 
operations. The U.S. government's fiscal year 2002 financial statements 
show an acquisition cost of more than $335 billion for the federal 
government's real property. This includes military bases, office 
buildings, embassies, prisons, courthouses, border stations, labs, and 
park facilities. Available governmentwide data suggest that the federal 
government owns roughly one-fourth of the total acreage of the nation-
-about 636 million acres.

Underutilized or excess property is costly to maintain. DoD alone 
estimates that it spends about $3 to $4 billion per year maintaining 
unneeded facilities. Excess DoE facilities cost more than $70 million 
per year, primarily for security and maintenance.

There are opportunity costs -these buildings and land could be put to 
more cost-beneficial uses, exchanged for needed property, or sold to 
generate revenue for the government. Table 1 below highlights excess 
and underutilized property challenges faced by some of the major real 
property-holding agencies.

Table 1: Excess Property Challenges at Some of the Major Real Property-
Holding Agencies:

Agency: DOD; Excess and underutilized property challenge: Even with 
four rounds of base realignment and closures that 
reduced its holdings by 21 percent, DOD recognized that it still had 
some excess and obsolete facilities. Accordingly, Congress gave DOD the 
authority for another round of base realignment and closure in the 
fiscal year 2002 defense authorization act, scheduled for fiscal year 
2005.

Agency: VA; Excess and underutilized property challenge: VA recognizes 
that it has excess capacity and has an effort 
underway known as the Capital Asset Realignment for Enhanced Services 
(CARES) that is intended to address this issue. VA recently completed 
its initial CARES study involving consolidation of services among 
medical facilities in its Great Lakes Network (including Chicago) as 
well as expansion of services in other locations. VA identified 31 
buildings that are no longer needed to meet veterans' health care needs 
in this network, including 30 that are currently vacant.

Agency: GSA; Excess and underutilized property challenge: GSA 
recognizes that it has many buildings that are not financially 
self-sustaining and/or for which there is not a substantial, long-term 
federal purpose. GSA is developing a strategy to address this problem. 
The L. Mendel Rivers Federal Building in Charleston, S.C. is a prime 
example of a highly visible, vacant federal building held by GSA.

Agency: DOE; Excess and underutilized property challenge: After 
shifting away from weapons production, DOE had 1,200 excess 
facilities totaling 16 million square feet, and the performance of its 
disposal program had not been fully satisfactory, according to DOE's 
Inspector General. Facility disposal activities have not been 
prioritized to balance mission requirements, reduce risks, and minimize 
life-cycle costs. In some cases, disposal plans were in conflict with 
new facility requirements.

Agency: USPS; Excess and underutilized property challenge: The issue 
of excess and underutilized property will need to be 
part of USPS's efforts to operate more efficiently. Facility 
consolidations and closures are likely to be needed to align USPS's 
portfolio more closely with its changing business model.

Agency: State; Excess and underutilized property challenge: Although 
State has taken steps to improve its disposal efforts 
and substantially reduce its inventory of unneeded properties, it 
reported that 92 properties were potentially available for sale as of 
September 30, 2001, with an estimated value of more than $180 million. 
State has begun the disposal process for some of these properties. 
State will also need to dispose of additional facilities over the next 
several years as it replaces more than 180 vulnerable embassies and 
consulates for security reasons. Security also has become a primary 
factor in considering the retention and sale of excess property.

[End of table]

If the federal government is to more effectively respond to the 
challenges associated with strategically managing its multi-billion 
dollar real property portfolio, a major departure from the traditional 
way of doing business is needed. Better managing these assets in the 
current environment calls for a significant paradigm shift to find 
solutions. Solutions should not only correct the long-standing problems 
we have identified but also be responsive to and supportive of 
agencies' changing missions, security concerns, and technological needs 
in the 21ST century. Solving the problems in this area will undeniably 
require a reconsideration of funding priorities at a time when budget 
constraints will be pervasive.

Because of the breadth and complexity of the issues involved, the long-
standing nature of the problems, and the intense debate about potential 
solutions that will likely ensue, current structures and processes may 
not be adequate to address the problems. Thus, as discussed in our 
high-risk report, there is a need for a comprehensive and integrated 
transformation strategy for federal real property. This strategy could 
address challenges associated with having adequate capacity (people and 
resources) to resolve the problems. The development of a transformation 
strategy would demonstrate a strong commitment and top leadership 
support to address the risk. An independent commission or 
governmentwide task force may be needed to develop the strategy. We 
believe that OMB is uniquely positioned to be the catalyst for 
identifying and bringing together the stakeholders that would develop 
the transformation strategy, drawing on resources and expertise from 
the General Services Administration, the Federal Real Property Council, 
and other real property-holding agencies. For example, OMB could assess 
agency real property activities as part of the executive branch 
management scorecard effort. Congress will need to play a key role in 
implementing the transformation strategy's roadmap for realigning and 
rationalizing the government's real property assets so that the 
portfolio is more directly tied to agencies' missions. Without 
measurable progress and a comprehensive strategy to guide improvements, 
real property will most likely remain on the high-risk list.

Reassessing What Government Does:

I have talked about the need to protect taxpayer dollars from fraud, 
waste, abuse and mismanagement and about the need to take actions 
improving the economy, efficiency and effectiveness of government 
programs, policies, and activities. However, to meet the challenges of 
today and the future, we must move beyond this to a more fundamental 
reassessment of what government does and how it does it.

In part this requires looking at current federal programs--both 
spending and tax incentives--in terms of their goals and results. Why 
does the program/activity exist? Is the activity achieving its intended 
objective? If not, can it be fixed? If so, how? If not, what other 
approaches might succeed in achieving the goal/objective? More 
fundamentally, even if a program/activity is achieving its stated 
mission--or can be "fixed" so that it does so--where does it fit in 
competition for federal resources? Is its priority today higher or 
lower than before given the nation's evolving challenges and fiscal 
constraints?

It also requires asking whether an existing program, policy, or 
activity "fits" the world we face today and in the future. It is 
important not to fall into the trap of accepting all existing 
activities as "givens" and subjecting new proposals to greater scrutiny 
than existing ones undergo. Think about how much the world has changed 
in the past few decades and how much it will change in future years.

One example of a disconnect between program design and today's world is 
the area of federal disability programs--a disconnect great enough to 
warrant designation as a "high-risk" area this year. Already growing, 
disability programs are poised to surge as baby-boomers age, yet the 
programs remain mired in outdated economic, workforce, and medical 
concepts and are not well positioned to provide meaningful and timely 
support to disabled Americans. Disability criteria have not been 
updated to reflect the current state of science, medicine, technology 
and labor market conditions. Using outdated information, agencies--
primarily SSA and VA--risk overcompensating some individuals while 
under-compensating or denying compensation entirely to others. Although 
federal disability programs present serious management challenges and 
can be vulnerable to fraud or abuse, the overarching and longer-term 
challenge is to design a disability system for the modern world.

We should be striving to maintain a government that is effective and 
relevant to a changing society--a government that is as free as 
possible of outmoded commitments and operations that can 
inappropriately encumber the future. The difference between "wants," 
"needs," and overall "affordability" and long-term "sustainability" is 
an important consideration when setting overall priorities and 
allocating limited resources.

Finally, any reassessment of federal missions and strategies should 
include the entire set of tools the federal government can use to 
address national objectives. These tools include discretionary and 
mandatory spending, loans and loan guarantees, tax provisions, and 
regulations. Spending is most visible and it is all too easy when we 
look to define federal support for an activity to look at the spending 
side of the budget. Federal support, however, may come in the form of 
direct loans or loan guarantees. It may come in the design of 
regulations. It may come in the form of exclusions or credits in the 
tax code. We contrast discretionary spending--which is controlled 
annually through the appropriations process--with mandatory or direct 
spending. Entitlements and mandatories are not uncontrollable, but 
because they continue unless changed, they may seem less controllable 
and may be subject to less frequent attention. While mandatory spending 
programs may too often be taken as "givens," think about the lack of 
public attention given tax preferences. These may be even less visible. 
Yet none of these tools should be ignored if we are to get a true 
picture of federal activity in an area. So, for example, if we are 
evaluating federal support for health care we need to look not only at 
spending, but also at tax preferences. If we are evaluating federal 
support for higher education, we need to look not only at spending but 
also at tax preferences such as the Lifetime Learning and HOPE tax 
credits. The same thing is true for health care. The figure below shows 
federal activity in health care and Medicare budget functions in FY 
2003: $48 billion in discretionary budget authority, $419 billion in 
mandatory outlays, $177 million in loan guarantees, and $129 billion in 
tax expenditures.

[See PDF for image]

[End of figure]

Approaches and Mechanisms to Facilitate Reexamination of Programs and 
Operations:

As the examples in this statement illustrate, a broad array of 
opportunities exist for improving the programs and operations of the 
federal government. Oversight and reassessment of programs and 
priorities is called for to address many of the long standing 
performance challenges in government programs and reposition the 
federal government for the 21ST Century. The oversight challenge takes 
place on many levels:

The management and effectiveness of individual programs;

Progress on cross-cutting governmentwide management challenges;

Looking across agency and program boundaries at the full range of 
federal activities and tools used to advance any given goal--and 
perhaps choosing among them.

This oversight agenda will be helped by the reforms instituted over the 
past decade. The Congress and several administrations have put in place 
a structure which is increasing the focus on and accountability for 
government performance. Federal agencies have been working to carry out 
the Government Performance and Results Act (GPRA), which requires the 
development of periodic strategic and annual performance plans and 
reports. GPRA requires linkages of performance plans to budgets, 
recognizing that one of the ways in which the full acceptance and 
potential of performance management can be promoted is if this 
information becomes relevant for the allocation of resources. The 
current administration has made linking resources to results one of the 
top five priorities in the President's Management Agenda. In this 
regard, OMB's Program Assessment Rating Tool (PART) represents an 
effort to use performance information more explicitly in the federal 
budget formulation process by summarizing performance and evaluation 
information. As you know, we are looking at the first year's experience 
with PART for one of your subcommittees and its counterpart in the 
Senate. Credible outcome-based performance information is absolutely 
critical to foster the kind of national debate that is needed about 
government in the 21ST Century.

While PART focuses on the performance of individual programs, many of 
the key performance issues affecting the public cut across individual 
programs and governmental tools, as illustrated by the examples 
discussed in my statement. The importance of seeing the overall picture 
cannot be overestimated. A single outcome, such as improving access to 
higher education or health care, are in fact provided through numerous 
spending, loan, loan guarantee and now tax incentive programs. 
Moreover, as the examples above illustrate, the failure to develop a 
consistent and coordinated program profile can frustrate and limit the 
outcomes we can achieve.

Congress and the administration need a vehicle to compare the 
performance results across similar programs addressing common outcomes. 
We have previously reported that the Government Performance and Results 
Act (Results Act) could provide a tool to reexamine roles and structure 
at the governmentwide level. The Results Act requires the President to 
include in his annual budget submission a federal government 
performance plan. The Congress intended that this plan provide a 
"single cohesive picture of the annual performance goals for the fiscal 
year." The governmentwide performance plan could be a unique tool to 
help the Congress and the executive branch address critical federal 
performance and management issues. It also could provide a framework 
for any restructuring efforts. Unfortunately, this provision has not 
been fully implemented.

Beyond an annual performance plan, a strategic plan for the federal 
government might be an even more useful tool to provide broad goals and 
facilitate integration of programs, functions, and activities, by 
providing a longer planning horizon. In the strategic planning process, 
it is critical to achieve mission clarity in the context of the 
environment in which we operate. With the profound changes in the 
world, a reexamination of the roles and missions of the federal 
government is certainly needed. From a clearly defined mission, goals 
can be defined and organizations aligned to carrying out the mission 
and goals. Integration and synergy can be achieved between components 
of the government and with external partners to provide more focused 
efforts on goal achievement. If fully developed, a governmentwide 
strategic plan can potentially provide a cohesive perspective on the 
long-term goals for a wide array of federal activities.

In addition, a strategic plan can provide a much needed framework for 
considering any organizational changes and restructuring of federal 
agencies and programs. Essentially, organizations and resources (e.g., 
human, financial, and technological) are the ways and means of 
achieving the goals articulated by the strategic plan. Organizational 
structures should ideally be aligned to be consistent with the goals 
and objectives of the strategic plan. Clear linkages should exist 
between the missions and functions of an organization and the goals and 
objectives it is trying to achieve. The development of a strategic plan 
can also facilitate the building of consensus by key stakeholders, 
including most notably the Congress, for any restructuring proposals.

As the Comptroller General testified last fall, fifty years of past 
efforts to link resources with results has shown that any successful 
effort must involve the Congress as a partner. In fact, the 
administration acknowledged that performance and accountability are 
shared responsibilities that must involve the Congress. It will only be 
through the continued attention of the Congress, the administration and 
federal agencies that progress can be sustained and more importantly, 
accelerated. The Congress has, in effect, served as the institutional 
champion for many previous performance management initiatives, such as 
GPRA and the CFO Act, by providing a consistent focus for oversight and 
reinforcement of important policies.

More generally, effective congressional oversight can help improve 
federal performance by examining the program structures agencies use to 
deliver products and services to ensure the best, most cost-effective 
mix of strategies is in place to meet agency and national goals. This 
means looking beyond the current structure of PART to the policy, 
management, and policy implications of crosscutting programs.

We have suggested in the past that the Congress might consider the need 
for mechanisms that allow it to more systematically focus its oversight 
on problems with the most serious and systemic weaknesses and risks. At 
present, the Congress has no direct mechanism to provide a 
congressional perspective on governmentwide performance issues. The 
Congress has no established mechanism to articulate performance goals 
for the broad missions of government, to assess alternative strategies 
that offer the most promise for achieving these goals, or to define an 
oversight agenda targeted on the most pressing cross-cutting 
performance and management issues. Congress might consider whether a 
more structured oversight mechanism is needed to permit a coordinated 
congressional perspective on governmentwide performance matters.

One possible approach would involve developing a congressional 
performance resolution identifying the key oversight and performance 
goals that the Congress wishes to set for its own committees and for 
the government as a whole. Such a resolution could be linked to the 
current congressional budget resolution. Initially, this might involve 
collecting the "views and estimates" of authorization and 
appropriations committees on priority performance issues for programs 
under their jurisdiction and working with such cross-cutting committees 
as such as this one. There are, of course, other possible approaches to 
the objective of enhancing congressional oversight. The issue I am 
raising is that Congress should assess whether its current structures 
and processes are adequate to take full advantage of the benefits 
arising from the reform agenda under way in the executive branch. 
Ultimately, what is important is not the specific approach or process, 
but rather achieving the result of helping the Congress better promote 
improvements in government operations through broad and comprehensive 
oversight and deliberation.

Reexamination of the role and activities of government for the 21ST 
Century requires more than performance information on individual 
programs or governmentwide management issues. As the Comptroller 
General has said on many occasions, any discussion about the role of 
the federal government, about the design and performance of federal 
activities, and about the near-term federal fiscal outlook takes place 
in the context of two dominating facts: a demographic tidal wave is on 
the horizon, and it combined with rising health care costs threatens to 
overwhelm the nation's fiscal future. The numbers do not add up. The 
fiscal gap is too great for any realistic expectation that the country 
can grow its way out of the problem.

Metrics and mechanisms need to be developed to facilitate consideration 
of the long-term implications of existing and proposed policies or 
programs. These range from explicit liabilities such as environmental 
cleanup requirements and federal pensions to the more implicit 
obligations presented by life-cycle costs of capital acquisition or 
disaster assistance. We have suggested that more systematic reporting 
on the nature and extent of these exposures would be 
beneficial.[Footnote 12]

Concluding Remarks:

Tackling areas at risk for fraud, waste, abuse and mismanagement will 
require determination, persistence and sustained attention by both 
agency managers and Congressional committees. Large and complex federal 
agencies must effectively use a mixture of critical resources and 
improved processes to improve their economy, efficiency, and 
effectiveness; Congressional oversight will be key.

In view of the broad trends and long-term fiscal challenges facing the 
nation, there is a need to fundamentally review, reassess, and 
reprioritize the proper role of the federal government, how the 
government should do business in the future, and--in some instances--
who should do the government's business in the 21ST century. It is also 
increasingly important that federal programs use properly designed and 
aligned tools to manage effectively across boundaries, work with 
individual citizens, other levels of government, and other sectors. 
Evaluating the role of government and the programs it delivers is key 
in considering how best to address the nation's most pressing 
priorities. Periodic reviews of programs in the budget, on the 
mandatory and discretionary sides of the budget as well as tax 
preferences, can prompt a healthy reassessment of our priorities and of 
the changes in program design, resources and management needed to get 
the results we collectively decide we want from government.

:

Needless to say, we at GAO are pleased to help Congress in this very 
important work.

:

Attachment I:

GAO's 2003 High-Risk List:

2003 High-Risk Area: Year Designated High Risk: 

Addressing Challenges In Broad-based Transformations: 

2003 High-Risk Area: Strategic Human Capital Management*; Year 
Designated High Risk: 2001.

2003 High-Risk Area: U.S. Postal Service Transformation Efforts and 
Long-Term Outlook*; 
Year Designated High Risk: 2001.

2003 High-Risk Area: Protecting Information Systems Supporting the 
Federal Government and the Nation's Critical Infrastructures; Year 
Designated High Risk: 1997.

2003 High-Risk Area: Implementing and Transforming the New Department 
of Homeland Security; Year Designated High Risk: 2003.

2003 High-Risk Area: Modernizing Federal Disability Programs*; Year 
Designated High Risk: 2003.

2003 High-Risk Area: Federal Real Property*; Year Designated High 
Risk: 2003.

Ensuring Major Technology Investments Improve Services: 

2003 High-Risk Area: FAA Air Traffic Control Modernization; Year 
Designated High Risk: 1995.

2003 High-Risk Area: IRS Business Systems Modernization; Year 
Designated High Risk: 1995.

2003 High-Risk Area: DOD Systems Modernization; Year Designated High 
Risk: 1995.

Providing Basic Financial Accountability: 

2003 High-Risk Area: DOD Financial Management; Year Designated High 
Risk: 1995.

2003 High-Risk Area: Forest Service Financial Management; Year 
Designated High Risk: 1999.

2003 High-Risk Area: FAA Financial Management; Year Designated High 
Risk: 1999.

2003 High-Risk Area: IRS Financial Management; Year Designated High 
Risk: 1995.

Reducing Inordinate Program Management Risks: 

2003 High-Risk Area: Medicare Program*; Year Designated High Risk: 
1990.

2003 High-Risk Area: Medicaid Program*; Year Designated High Risk: 
2003.

2003 High-Risk Area: Earned Income Credit Noncompliance; Year 
Designated High Risk: 1995.

2003 High-Risk Area: Collection of Unpaid Taxes; Year Designated High 
Risk: 1990.

2003 High-Risk Area: DOD Support Infrastructure Management; Year 
Designated High Risk: 1997.

2003 High-Risk Area: DOD Inventory Management; Year Designated High 
Risk: 1990.

2003 High-Risk Area: HUD Single-Family Mortgage Insurance and Rental 
Assistance Programs; Year Designated High Risk: 1994.

2003 High-Risk Area: Student Financial Aid Programs; Year Designated 
High Risk: 1990.

Managing Large Procurement Operations More Efficiently: 

2003 High-Risk Area: DOD Weapon Systems Acquisition; Year Designated 
High Risk: 1990.

2003 High-Risk Area: DOD Contract Management; Year Designated High 
Risk: 1992.

2003 High-Risk Area: Department of Energy Contract Management; Year 
Designated High Risk: 1990.

2003 High-Risk Area: NASA Contract Management; Year Designated High 
Risk: 1990.

*Additional authorizing legislation is likely to be required as one 
element of addressing this high-risk area.

Source: GAO:

[End of table]

Attachment II:

Selected Reports Regarding Specific Examples Cited in Testimony:

Erroneous payments, Misuse of benefits, Child and Adult Care Food 
Program (CACFP), National School Lunch Program:

Food Assistance: WIC Faces Challenges in Providing Nutrition Services. 
GAO-02-142. Washington, D.C.: December 7, 2001.

Food Stamp Program: Better Use of Electronic Data Could Result in 
Disqualifying More Recipients Who Traffic Benefits. GAO/RCED-00-61. 
Washington, D.C.: March 7, 2000.

Food Assistance: Efforts to Control Fraud and Abuse in the Child and 
Adult Care Food Program Should Be Strengthened. GAO/RCED-00-12. 
Washington, D.C.: November 29, 1999.

Food Stamp Program: Storeowners Seldom Pay Financial Penalties Owed for 
Program Violations. GAO/RCED-99-91. Washington, D.C.: May 11, 1999.

HUD Single-Family Mortgage Insurance and Rental Assistance Programs:

U.S. General Accounting Office, Financial Management: Strategies to 
Address Improper Payments at HUD, Education and Other Federal Agencies, 
GAO-03-167T (Washington, D.C.: Oct 3, 2002).

U.S. General Accounting Office, Strategies to Manage Improper Payments: 
Learning from Public and Private Sector Organizations, GAO-02-69G 
(Washington, D.C.: October 2001).

U.S. General Accounting Office, Major Management Challenges and Program 
Risks, Department of Housing and Urban Development, GAO-01-248 
(Washington, D.C.: January 2001).

U.S. General Accounting Office, HUD Management: HUD's High-Risk Program 
Areas and Management Challenges, GAO-02-869T (Washington, D.C.: July 
24, 2002).

U.S. General Accounting Office, Financial Management: Coordinated 
Approach Needed to Address the Government's Improper Payments Problems, 
GAO-02-749 (Washington, D.C.: Aug 9, 2002).

Grant Programs:

Formula Grants: Effects of Adjusted Population Counts on Federal 
Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 
State Spending. GAO/HEHS-99-29R. Washington, D.C.: February 19, 1999.

Welfare Reform: Early Fiscal Effect of the TANF Block Grant. GAO/AIMD-
98-137. Washington, D.C.: August 22, 1998.

Public Housing Subsidies: Revisions to HUD's Performance Funding System 
Could Improve Adequacy of Funding. GAO/RCED-98-174. Washington, D.C.: 
June 19, 1998.

School Finance: State Efforts to Equalize Funding Between Wealthy and 
Poor School Districts. GAO/HEHS-98-92. Washington, D.C.: June 16, 1998.

School Finance: State and Federal Efforts to Target Poor Students. GAO/
HEHS-98-36. Washington, D.C.: January 28, 1998.

School Finance: State Efforts to Reduce Funding Gaps Between Poor and 
Wealthy Districts. GAO/HEHS-97-31. Washington, D.C.: February 5, 1997.

Federal Grants: Design Improvements Could Help Federal Resources Go 
Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.

Public Health: A Health Status Indicator for Targeting Federal Aid to 
States. GAO/HEHS-97-13. Washington, D.C.: November 13, 1996.

School Finance: Options for Improving Measures of Effort and Equity in 
Title I. GAO/HEHS-96-142. Washington, D.C.: August 30, 1996.

Highway Funding: Alternatives for Distributing Federal Funds. GAO/RCED-
96-6. Washington, D.C.: November 28, 1995.

Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity. 
GAO/HEHS-96-26. Washington, D.C.: November 13, 1995.

Department of Labor: Senior Community Service Employment Program 
Delivery Could Be Improved Through Legislative and Administrative 
Action. GAO/HEHS-96-4. Washington, D.C.: November 2, 1995.

Flood Insurance Losses:

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-00-23. Washington, D.C.: October 27, 
1999.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-99-280. Washington, D.C.: August 25, 
1999.

Flood Insurance: Financial Resources May Not Be Sufficient to Meet 
Future Expected Losses. GAO/RCED-94-80. Washington, D.C.: March 21, 
1994.

Medicare Incentive Payment Programs:

Physician Shortage Areas: Medicare Incentive Payments Not an Effective 
Approach to Improve Access. GAO/HEHS-99-36. Washington, D.C.: February 
26, 1999.

Health Care Shortage Areas: Designations Not a Useful Tool for 
Directing Resources to the Underserved. GAO/HEHS-95-200. Washington, 
D.C.: September 8, 1995.

Social Security Pension Offset Provision:

Social Security Administration: Revision to the Government Pension 
Offset Exemption Should Be Considered. GAO-02-950. Washington, D.C.: 
August 15, 2002.

Social Security: Congress Should Consider Revising the Government 
Pension Offset "Loophole". GAO-03-498T. Washington, D.C.: February 27, 
2002.

Food Safety:

Food Safety: CDC Is Working to Address Limitations in Several of Its 
Foodborne Surveillance Systems. GAO-01-973. Washington, D.C.: 
September 7, 2001.

Food Safety: Federal Oversight of Shellfish Safety Needs Improvement. 
GAO-01-702. Washington, D.C.: July 9, 2001.

Food Safety: Overview of Federal and State Expenditures. GAO-01-177. 
Washington, D.C.: February 20, 2001.

Food Safety: Federal Oversight of Seafood Does Not Sufficiently Protect 
Consumers. GAO-01-204. Washington, D.C.: January 31, 2001.

Food Safety: Actions Needed by USDA and FDA to Ensure That Companies 
Promptly Carry Out Recalls. GAO/RCED-00-195. Washington, D.C.: August 
17, 2000.

Food Safety: Improvements Needed in Overseeing the Safety of Dietary 
Supplements and "Functional Foods". GAO/RCED-00-156. Washington, D.C.: 
July 11, 2000.

Meat and Poultry: Improved Oversight and Training Will Strengthen New 
Food Safety System. GAO/RCED-00-16. Washington, D.C.: December 8, 1999.

Food Safety: Agencies Should Further Test Plans for Responding to 
Deliberate Contamination. GAO/RCED-00-3. Washington, D.C.: October 27, 
1999.

Food Safety: U.S. Needs a Single Agency to Administer a Unified, Risk-
Based Inspection System. GAO/T-RCED-99-256. Washington, D.C.: August 4, 
1999.

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 
1998.

Food Safety: Federal Efforts to Ensure the Safety of Imported Foods Are 
Inconsistent and Unreliable. GAO/RCED-98-103. Washington, D.C.: April 
30, 1998.

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food. GAO/
RCED-94-192. Washington, D.C.: September 26, 1994.

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

Grants for Homeland Security:

Federal Assistance: Grant System Continues to Be Highly Fragmented. 
GAO-03-718T. Washington, D.C.: April 29, 2003.

Multiple Employment and Training Programs: Funding and Performance 
Measures for Major Programs. GAO-03-589. Washington, D.C.: April 18, 
2003.

Managing for Results: Continuing Challenges to Effective GPRA 
Implementation. GAO/T-GGD-00-178. Washington, D.C.: July 20, 2000.

Workforce Investment Act: States and Localities Increasingly Coordinate 
Services for TANF Clients, but Better Information Needed on Effective 
Approaches. GAO-02-696. Washington, D.C.: July 3, 2002.

Fundamental Changes are Needed in Federal Assistance to State and Local 
Governments. GAO/GGD-75-75. Washington, D.C.: August 19, 1975.

Rural Housing Assistance:

Rural Housing Programs: Opportunities Exist for Cost Savings and 
Management Improvement. GAO/RCED-96-11. Washington, D.C.: November 16, 
1995.

Public Power:

Congressional Oversight: Opportunities to Address Risks, Reduce Costs, 
and Improve Performance. GAO/T-AIMD-00-96. Washington, D.C.: February 
17, 2000.

Federal Power: The Role of the Power Marketing Administrations in a 
Restructured Electricity Industry. GAO/T-RCED/AIMD-99-229. Washington, 
D.C.: June 24, 1999.

Federal Power: PMA Rate Impacts, by Service Area. GAO/RCED-99-55. 
Washington, D.C.: January 28, 1999.

Federal Power: Regional Effects of Changes in PMAs' Rates. GAO/RCED-99-
15. Washington, D.C.: November 16, 1998.

Power Marketing Administrations: Repayment of Power Costs Needs Closer 
Monitoring. GAO/AIMD-98-164. Washington, D.C.: June 30, 1998.

Federal Power: Options for Selected Power Marketing Administrations' 
Role in a Changing Electricity Industry. GAO/RCED-98-43. Washington, 
D.C.: March 6, 1998.

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses. GAO/AIMD-97-110 and 110A. Washington, 
D.C.: September 19, 1997.

Federal Power: Issues Related to the Divestiture of Federal Hydropower 
Resources. GAO/RCED-97-48. Washington, D.C.: March 31, 1997.

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities. GAO/AIMD-96-145. Washington, D.C.: 
September 19, 1996.

Federal Power: Outages Reduce the Reliability of Hydroelectric Power 
Plants in the Southeast. GAO/T-RCED-96-180. Washington, D.C.: July 25, 
1996.

Federal Power: Recovery of Federal Investment in Hydropower Facilities 
in the Pick-Sloan Program. GAO/T-RCED-96-142. Washington, D.C.: May 2, 
1996.

Federal Electric Power: Operating and Financial Status of DOE's Power 
Marketing Administrations. GAO/RCED/AIMD-96-9FS. Washington, D.C.: 
October 13, 1995.

Child Support Enforcement:

Child Support Enforcement: Clear Guidance Would Help Ensure Proper 
Access to Information and Use of Wage Withholding by Private Firms. 
GAO-02-349, March 26, 2002.

Child Support Enforcement: Effects of Declining Welfare Caseloads Are 
Beginning to Emerge. GAO/HEHS-99-105. Washington, D.C.: June 30, 1999.

Welfare Reform: Child Support an Uncertain Income Supplement for 
Families Leaving Welfare. GAO/HEHS-98-168. Washington, D.C.: August 3, 
1998.

Child Support Enforcement: Early Results on Comparability of Privatized 
and Public Offices. GAO/HEHS-97-4. Washington, D.C.: December 16, 1996.

Child Support Enforcement: Reorienting Management Toward Achieving 
Better Program Results. GAO/HEHS/GGD-97-14. Washington, D.C.: October 
25, 1996.

Child Support Enforcement: States' Experience with Private Agencies' 
Collection of Support Payments. GAO/HEHS-97-11. Washington, D.C.: 
October 23, 1996.

Child Support Enforcement: States and Localities Move to Privatized 
Services. GAO/HEHS-96-43FS. Washington, D.C.: November 20, 1995.

Child Support Enforcement: Opportunity to Reduce Federal and State 
Costs. GAO/T-HEHS-95-181. Washington, D.C.: June 13, 1995.

(450243):

FOOTNOTES

[1] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
03-119 (Washington, D.C.: January 2003).

[2] Attached to this testimony is a list of selected GAO reports 
related to the specific examples cited.

[3] U.S. General Accounting Office, Tax Administration: Impact of 
Compliance and Collection Program Declines on Taxpayers, GAO-02-674 
(Washington, D.C.: May 22, 2002).



[4] Levy is the legal process by which IRS orders a third party to turn 
over property in its possession that belongs to the delinquent taxpayer 
named in a notice of levy. A continuous levy remains in effect from the 
date such levy is first made until the tax debt is fully paid or IRS 
releases the levy. 

[5] Specifically, the 1997 legislation allows continuous levy of 
"specified payments," including non-means tested federal payments, as 
well as certain previously exempt payments. 

[6] U.S. General Accounting Office, Tax Administration: Millions of 
Dollars Could be Collected if IRS Levied More Federal Payments, GAO-01-
711 (Washington, D.C.: July 20, 2001).

[7] U.S. General Accounting Office, Tax Administration: Federal Payment 
Levy Program Measures, Performance, and Equity Can Be Improved, GAO-03-
356 (Washington, D.C.: March 6, 2003).

[8] Medicare: Payments for Covered Outpatient Drugs Exceed Providers' 
Cost, GAO-01-1118 (Washington, D.C.: Sept. 21, 2001).

[9] U.S. General Accounting Office, Benefit and Loan Programs: Improved 
Data Sharing Could Enhance Program Integrity, GAO/HEHS-00-19 
(Washington, D.C., Sept. 13, 2000).

[10] U.S. General Accounting Office, Single-Family Housing: Stronger 
Oversight of FHA Lenders Could Reduce HUD's Insurance Risk, GAO/RCED-
00-112 (Washington, D.C.: April 28, 2000).

[11] U.S. General Accounting Office, Single-Family Housing: 
Opportunities to Improve Federal Foreclosure and Property Sales 
Processes, GAO-02-305 (Washington, D.C.: April 17, 2002).

[12] U.S. General Accounting Office, Fiscal Exposures: Improving the 
Budgetary Focus on Long-Term Costs and Uncertainties, GAO-03-213 
(Washington, D.C.: January 24, 2003).