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United States Government Accountability Office: 


Before the House Committee on Oversight and Government Reform: 

For Release on Delivery: 
Expected at 9:30 a.m. EST: 
Thursday, February 17, 2011: 

GAO's 2011 High-Risk Series: 

An Update: 

Statement of Gene L. Dodaro: 
Comptroller General of the United States: 


GAO Highlights: 

Highlights of GAO-11-394T, a statement before the House Committee on 
Oversight and Government Reform. 

Why GAO Did This Study: 

The federal government is the world’s largest and most complex entity, 
with about $3.5 trillion in outlays in fiscal year 2010 funding a 
broad array of programs and operations. GAO maintains a program to 
focus attention on government operations that it identifies as high 
risk due to their greater vulnerabilities to fraud, waste, abuse, and 
mismanagement or the need for transformation to address economy, 
efficiency, or effectiveness challenges. 

This testimony summarizes GAO’s 2011 High-Risk Update, which describes 
the status of high-risk areas listed in 2009 and identifies any new 
high-risk area needing attention by Congress and the executive branch. 
Solutions to high-risk problems offer the potential to save billions 
of dollars, improve service to the public, and strengthen the 
performance and accountability of the U.S. government. 

What GAO Found: 

This year, GAO removed the high-risk designation from two areas—the 
DOD Personnel Security Clearance Program and the 2010 Census—and 
designated one new high-risk area—Interior’s Management of Federal Oil 
and Gas Resources. These changes bring GAO’s 2011 High-Risk List to a 
total of 30 areas. While many positive developments have occurred, 
additional progress is both possible and needed in all 30 high-risk 
areas to save billions of dollars and further improve the performance 
of federal programs and operations. Congressional oversight and 
sustained attention by top administration officials are essential to 
ensuring further progress. The high-risk effort is a top priority for 
GAO. Working with Congress, agency leaders, and the Office of 
Management and Budget, GAO will continue to provide insights and 
recommendations on needed actions to solve high-risk areas. 

Regarding the new high-risk area, Interior does not have reasonable 
assurance that it is collecting its share of billions of dollars of 
revenue from oil and gas produced on federal lands, and it continues 
to experience problems in hiring, training, and retaining sufficient 
staff to provide oversight and management of oil and gas operations on 
federal lands and waters. Further, Interior recently began 
restructuring its oil and gas program, which is inherently 
challenging, and there are many open questions about whether Interior 
has the capacity to undertake this reorganization while carrying out 
its range of responsibilities, especially in a constrained resource 

While there has been some progress on nearly all of the issues that 
remain on the High-Risk List, the nation cannot afford to allow 
problems to persist. This statement discusses opportunities for 
savings that can accrue if progress is made to address high-risk 
problems. For example: 

* Billions of dollars are estimated in Medicare and Medicaid improper 
payments. The effective implementation of recent laws, including the 
Improper Payments Elimination and Recovery Act of 2010, and 
administration guidance will be key factors in determining the overall 
effectiveness of reducing improper payments in the Medicare and 
Medicaid programs. 

* Federal agencies’ real property holdings include thousands of excess 
and/or underutilized buildings and cost over $1.6 billion annually to 
operate. If this issue is not addressed, the costs to maintain these 
properties will continue to rise. 

* Over the next 5 years, the Department of Defense (DOD) expects to 
invest over $300 billion (in fiscal year 2011 dollars) on the 
development and procurement of major defense acquisition programs. DOD 
must get better value for its weapon system spending and find ways to 
deliver needed capability to the warfighter for less than it has spent 
in the past. 

What GAO Recommends: 

The High-Risk update contains GAO’s views on progress made and what 
remains to be done to bring about lasting solutions for each high-risk 
area. Perseverance by the executive branch in implementing GAO’s 
recommended solutions and continued oversight and action by Congress 
are essential to achieving progress. GAO is dedicated to continue 
working with Congress and the executive branch to help ensure 
additional progress is made. 

View GAO-11-394T or key components. For more information, contact J. 
Christopher Mihm at (202) 512-6806 or 

[End of section] 

GAO’s 2011 High-Risk List: 

Strengthening the Foundation for Efficiency and Effectiveness: 

* Management of Federal Oil and Gas Resources (New): 

* Modernizing the Outdated U.S. Financial Regulatory System: 

* Restructuring the U.S. Postal Service to Achieve Sustainable: 

Financial Viability: 

* Funding the Nation’s Surface Transportation System: 

* Strategic Human Capital Management: 

* Managing Federal Real Property: 

Transforming DOD Program Management: 

* DOD Approach to Business Transformation: 

* DOD Business Systems Modernization: 

* DOD Support Infrastructure Management: 

* DOD Financial Management: 

* DOD Supply Chain Management: 

* DOD Weapon Systems Acquisition: 

Ensuring Public Safety and Security: 

* Implementing and Transforming the Department of Homeland Security: 

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

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

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

* Revamping Federal Oversight of Food Safety: 

* Protecting Public Health through Enhanced Oversight of Medical 

* Transforming EPA’s Process for Assessing and Controlling Toxic 

Managing Federal Contracting More Effectively: 

* DOD Contract Management: 

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

* NASA Acquisition Management: 

* Management of Interagency Contracting: 

Assessing the Efficiency and Effectiveness of Tax Law Administration: 

* Enforcement of Tax Laws: 

* IRS Business Systems Modernization: 

Modernizing and Safeguarding Insurance and Benefit Programs: 

* Improving and Modernizing Federal Disability Programs: 

* Pension Benefit Guaranty Corporation Insurance Programs: 

* Medicare Program: 

* Medicaid Program: 

* National Flood Insurance Program: 

Source: GAO. 

[End of section] 

Mr. Chairman, Ranking Member Cummings, and Members of the Committee: 

Thank you for the opportunity to discuss GAO's 2011 High-Risk update. 
[Footnote 1] This year, GAO removed the high-risk designation from two 
areas--the DOD Personnel Security Clearance Program and the 2010 
Census--and designated one new high-risk area--Interior's Management 
of Federal Oil and Gas Resources. These changes bring GAO's 2011 High-
Risk List to a total of 30 areas, each of which is discussed in detail 
in our report and updated on our Web site.[Footnote 2] Those 
discussions include the nature of the risk, progress made since our 
last High-Risk update in 2009, and the specific actions needed for 
additional progress. 

While many positive developments have occurred, additional progress is 
both possible and needed in all 30 high-risk areas to save billions of 
dollars and further improve the performance of federal programs and 
operations. In that regard, I want to commend you, Mr. Chairman and 
the committee for holding this hearing to draw needed attention to 
these important problems. Congressional oversight and sustained 
attention by top administration officials are essential to ensuring 
further progress. Also, please be assured the high-risk effort is a 
top priority for GAO and we will continue to provide insights and 
recommendations on needed actions to address high-risk areas, working 
with Congress, agency leaders, and the Office of Management and Budget 

High-Risk Designation Removed: 

When legislative, administration, and agency actions, including those 
in response to our recommendations, result in significant progress 
toward resolving a high-risk problem, we remove the high-risk 
designation. The five criteria for determining if the high-risk 
designation can be removed are (1) a demonstrated strong commitment 
to, and top leadership support for, addressing problems; (2) the 
capacity to address problems; (3) a corrective action plan; (4) a 
program to monitor corrective measures; and (5) demonstrated progress 
in implementing corrective measures. 

For our 2011 high-risk update, we determined that two areas warranted 
removal from the High-Risk List: the Department of Defense (DOD) 
Personnel Security Clearance Program and the 2010 Census. As we have 
with areas previously removed from the High-Risk List, we will 
continue to monitor these areas, as appropriate, to ensure that the 
improvements we have noted are sustained. If significant problems 
again arise, we will consider reapplying the high-risk designation. 

Department of Defense Personnel Security Clearance Program: 

We are removing DOD's personnel security clearance program from the 
High-Risk List because of the agency's progress in timeliness and the 
development of tools and metrics to assess quality, as well as its 
commitment to sustaining progress. Importantly, continued 
congressional oversight and the committed leadership of the 
Suitability and Security Clearance Performance Accountability Council 
(Council)--which is responsible for overseeing security clearance 
reform efforts--have greatly contributed to the progress of DOD and 
governmentwide security clearance reform.[Footnote 3] 

DOD officials, in coordination with the Council, have demonstrated a 
strong commitment to, and a capacity for, addressing security 
clearance reform efforts in line with the Intelligence Reform and 
Terrorism Prevention Act (IRTPA) of 2004. Specifically, DOD (1) 
significantly improved the timeliness of security clearances and met 
the IRTPA objective for processing 90 percent of initial clearances on 
average within 60 days for fiscal year 2010, (2) worked with members 
of the Council to develop a strategic framework for clearance reform, 
(3) designed quality tools to evaluate completeness of clearance 
documentation, (4) issued guidance on adjudication standards, and (5) 
continues to be a prominent player in the overall security clearance 
reform effort, which includes entities within the Office of Management 
and Budget, the Office of Personnel Management, and the Office of the 
Director of National Intelligence. These efforts have yielded positive 

Continued congressional oversight and the committed leadership of DOD 
have greatly contributed to the progress in addressing the problems 
with the personnel security clearance process. We will continue to 
monitor DOD's efforts because security clearance reform is ongoing, 
and DOD needs to place a high priority on ensuring that timeliness 
improvements continue and quality is built into every step of the 
process using quantifiable and independently verifiable metrics. 

The 2010 Census: 

We removed the 2010 Census from our High-Risk List because the U.S. 
Census Bureau (Bureau) generally completed its peak census data 
collection activities consistent with its operational plans; released 
the state population counts used to apportion Congress on December 21, 
2010, several days ahead of the legally mandated end-of-year deadline; 
and remaining activities appear to be on track, including, as required 
by law, delivering the data that states use for congressional 
redistricting by April 1, 2011. 

A successful census is critical because the census is a 
constitutionally mandated program used to apportion and redistrict the 
U.S. House of Representatives, help allocate about $400 billion yearly 
in federal financial assistance, and inform the planning and 
investment decisions of numerous public-and private-sector entities. 

In March 2008, we designated the 2010 Census a high-risk area because 

* long-standing weaknesses in the Bureau's information technology (IT) 
acquisition and contract management function, 

* problems with the performance of handheld computers used to collect 
data, and: 

* uncertainty over the ultimate cost of the census, which escalated 
from an initial estimate of $11.3 billion in 2001 to around $13 

To address these issues and help secure a successful census, the 
Bureau demonstrated strong commitment and top leadership support to 
mitigate the risks, including bringing in experienced personnel to key 
positions and taking steps to implement our recommendations to 
strengthen its IT and other management and planning functions. At the 
same time, similar to the case with the DOD Personnel Security 
Clearance Program, active congressional oversight--including a dozen 
congressional hearings held after we added the census to our High-Risk 
List--helped ensure the Bureau effectively designed and managed 
operations and kept the enumeration on schedule. 

Although every census has its decade-specific difficulties, societal 
trends--including growing concerns over personal privacy, more non- 
English speakers, and more people residing in makeshift and other 
nontraditional living arrangements--make each decennial inherently 
challenging. As shown in figure 1, the cost of enumerating each 
housing unit has escalated from an average of around $16 in 1970 to 
around $98 in 2010, an increase of over 500 percent (in constant 2010 
dollars). At the same time, the mail response rate--a key indicator of 
a successful census--has declined from 78 percent in 1970 to 63 
percent in 2010. Put another way, the Bureau has to invest 
substantially more resources each decade in an effort to keep pace 
with key results from prior enumerations. 

Figure 1: The Average Cost of Counting Each Housing Unit (in Constant 
2010 Dollars) Has Escalated Each Decade While Mail Response Rates Have 

[Refer to PDF for image: combination vertical bar and line graph] 

Year: 1970; 
Average cost per housing unit (in constant 2010 dollars): $16; 
Mail response rate: 78%. 

Year: 1980; 
Average cost per housing unit (in constant 2010 dollars): $30; 
Mail response rate: 75%. 

Year: 1990; 
Average cost per housing unit (in constant 2010 dollars): $39; 
Mail response rate: 66%. 

Year: 2000; 
Average cost per housing unit (in constant 2010 dollars): $70; 
Mail response rate: 66%. 

Year: 2010; 
Average cost per housing unit (in constant 2010 dollars): $98 
Mail response rate: 63%. 

Source: GAO analysis of Census Bureau data. 

Note: In the 2010 Census, the Bureau used only a short-form 
questionnaire. For our analysis, we use the 1990 and 2000 Census short-
form mail response rate when comparing 1990, 2000, and 2010 mail-back 
response rates. Because Census short-form mail response rates are 
unavailable for 1980 and 1970, we use the overall response rate. 

[End of figure] 

The bottom line is that the fundamental design of the enumeration--in 
many ways unchanged since 1970--is no longer capable of delivering a 
cost-effective headcount given ongoing and newly emerging societal 
trends. Thus, while the 2020 Census may seem well over the horizon, 
research and planning activities need to start early in the decade to 
help ensure the 2020 Census is as cost-effective as possible. Indeed, 
the Bureau's past experience has shown that early investments in 
planning can help reduce the costs and risks of downstream operations. 

Going forward, potential focus areas for Census reform include new 
data collection methods such as using administrative records from 
other government agencies, including driver's licenses; better 
leveraging innovations in technology and social media to more fully 
engage census stakeholders and the general public on census issues; 
reaching agreement on a set of criteria that could be used to weigh 
the trade-offs associated with the need for high levels of accuracy on 
the one hand, and the increasing cost of achieving that accuracy on 
the other hand; and ensuring that the Bureau's approach to human 
capital management, collaboration, capital decision-making, knowledge 
sharing, and other internal functions are aligned toward delivering a 
more cost-effective headcount. 

Ongoing congressional oversight over the course of the decade will 
also be critical for ensuring the Bureau's reform efforts stay on 

The Bureau recognizes that it needs to change its method of doing 
business and has already taken some important first steps in this 
regard. For example, the Bureau is rebuilding its research directorate 
to lead early planning efforts and has developed a strategic plan for 
2020 and other related documents that, among other things, outline the 
Bureau's mission and vision for 2020. 

Thus, in looking ahead toward the next Census, it will be vitally 
important to both identify lessons learned from the 2010 enumeration 
to improve existing census-taking activities, as well as to re-examine 
and perhaps fundamentally transform the way the Bureau plans, tests, 
implements, monitors, and evaluates future enumerations in order to 
address long-standing challenges. 

New High-Risk Area: Management of Federal Oil and Gas Resources: 

We have designated the Department of the Interior's management of 
federal oil and gas on leased federal lands and waters as high risk 
because Interior (1) does not have reasonable assurance that it is 
collecting its share of revenue from oil and gas produced on federal 
lands; (2) continues to experience problems in hiring, training, and 
retaining sufficient staff to provide oversight and management of oil 
and gas operations on federal lands and waters; and (3) is currently 
engaged in a broad reorganization of both its offshore oil and gas 
management and revenue collection functions. With regard to this 
organizational effort, there are many open questions about whether 
Interior has the capacity to undertake such a reorganization while 
continuing to provide reasonable assurance that billions of dollars of 
revenue owed the public are being properly assessed and collected and 
that oil and gas exploration and production on federal lands and 
waters is well-managed. 

Federal oil and gas resources provide an important source of energy 
for the United States, create jobs in the oil and gas industry, and 
generate billions of dollars annually in revenues that are shared 
between federal, state, and tribal governments. Revenue generated from 
federal oil and gas production is one of the largest nontax sources of 
federal government funds, accounting for about $9 billion in fiscal 
year 2009. Also, the explosion onboard the Deepwater Horizon and oil 
spill in the Gulf of Mexico in April 2010 emphasized the importance of 
Interior's management of permitting and inspection processes to ensure 
operational and environmental safety. The National Commission on the 
BP Deepwater Horizon Oil Spill and Offshore Drilling reported in 
January 2011 that this disaster was the product of several individual 
missteps and oversights by BP, Halliburton, and Transocean, which 
government regulators lacked the authority, the necessary resources, 
and the technical expertise to prevent. 

Historically, Interior's Bureau of Land Management (BLM) managed 
onshore federal oil and gas activities, while the Minerals Management 
Service (MMS) managed offshore activities and collected royalties for 
all leases. Interior recently began restructuring its oil and gas 
program, transferring offshore oversight responsibilities to the newly 
created Bureau of Ocean Energy Management, Regulation and Enforcement 
(BOEMRE) and revenue collection to a new Office of Natural Resource 

Interior faces ongoing challenges in three broad areas, including the 

Revenue collection. In 2008, GAO reported that Interior collected 
lower levels of revenues for oil and gas production than all but 11 of 
104 oil and gas resource owners whose revenue collection systems were 
evaluated in a comprehensive industry study--these resource owners 
included many other countries as well as some states. GAO recommended 
that Interior undertake a comprehensive reassessment of its revenue 
collection policies and processes. Interior has commissioned such a 
study in response to GAO's September 2008 report, and the study is 
expected to be completed in 2011. The results of the study may reveal 
the potential for greater revenues to the federal government. GAO also 
reported in 2010 that neither BLM nor MMS had consistently met their 
statutory requirements or agency goals for oil and gas production 
verification inspections. Without such verification, Interior cannot 
provide reasonable assurance that the public is collecting its legal 
share of revenue from oil and gas development on federal lands and 
waters. In addition, GAO reported in 2009 on numerous problems with 
Interior's efforts to collect data on oil and gas produced on federal 
lands, including missing data, errors in company-reported data on oil 
and gas production, sales data that did not reflect prevailing market 
prices for oil and gas, and a lack of controls over changes to the 
data that companies reported. As a result of Interior's lack of 
consistent and reliable data on the production and sale of oil and gas 
from federal lands, Interior could not provide reasonable assurance 
that it was assessing and collecting the appropriate amount of 
royalties on this production. GAO made a number of recommendations to 
Interior to improve controls on the accuracy and reliability of 
royalty data. Interior generally agreed with GAO's recommendations and 
is working to implement many of them, but these efforts are not 
complete and it is uncertain if they will be fully successful. 

Human capital. GAO has reported that BLM and MMS have encountered 
persistent problems in hiring, training, and retaining sufficient 
staff to meet its oversight and management of oil and gas operations 
on federal lands and waters. For example, in 2010, GAO found that BLM 
and MMS experienced high turnover rates in key oil and gas inspection 
and engineering positions. As a result, Interior faces challenges 
meeting its responsibilities to oversee oil and gas development on 
federal leases, potentially placing both the environment and royalties 
at risk. GAO made recommendations to address these issues. While 
Interior's reorganization of MMS includes plans to hire additional 
staff with expertise in oil and gas inspections and engineering, these 
plans have not been fully implemented, and it remains unclear whether 
Interior will be fully successful in hiring, training, and retaining 
these staff. Further, human capital issues also exist in the BLM and 
the management of onshore oil and gas, and these issues have not been 
addressed in Interior's reorganization plans. 

Reorganization. In May 2010, the Secretary of the Interior announced 
plans to reorganize MMS--its bureau responsible for overseeing 
offshore oil and gas activities and collecting royalties--into three 
separate bureaus. The Secretary of the Interior stated that dividing 
MMS's responsibilities among three separate bureaus will help ensure 
that each of the three newly established bureaus have a distinct and 
independent mission. While this reorganization may eventually lead to 
more effective operations, GAO has reported that organizational 
transformations are not simple endeavors and require the concentrated 
efforts of both leaders and employees to realize intended synergies 
and accomplish new organizational goals. One key practice that GAO has 
identified for effective organizational transformation is to balance 
continued delivery of services with transformational activities. 
However, we are concerned about Interior's capacity to find the proper 
balance given its history of management problems and challenges in the 
human capital area. Specifically, GAO is concerned about Interior's 
ability to undertake this reorganization while providing reasonable 
assurance that billions of dollars of revenues owed the public are 
being properly assessed and collected and that oversight of oil and 
gas exploration and production on federal lands and waters maintains 
an appropriate balance between efficiency and timeliness on one hand, 
and protection of the environment and operational safety on the other. 
In addition, Interior's reorganization efforts do not address BLM's 
ongoing challenges with its permitting and inspections programs and 
human capital challenges. 

Interior must successfully address the challenges GAO has identified, 
implement open recommendations, and meet its routine responsibilities 
to manage federal oil and gas resources in the public interest, while 
managing a major reorganization that has the potential to distract 
agency management from other important tasks and put additional strain 
on Interior staff. While Interior recently began implementing a number 
of GAO recommendations, including those intended to improve the 
reliability of data necessary for determining royalties, the agency 
has yet to fully implement a number of recommendations, including 
those intended to (1) provide reasonable assurance that oil and gas 
produced from federal leases is accurately measured and that the 
public is getting an appropriate share of oil and gas revenues, and 
(2) address its long-standing human capital issues. 

Remaining High-Risk Areas: 

While there has been some progress on nearly all of the issues that 
remain on the High-Risk List, the nation cannot afford to allow 
problems to persist. Addressing high-risk problems can save billions 
of dollars each year. Several areas on GAO's list illustrate both the 
challenges of addressing difficult and tenacious high-risk problems 
and the opportunities for savings that can accrue if progress is made 
to address high-risk problems. 

Medicare and Medicaid. GAO designated Medicare as a high-risk program 
because its complexity and susceptibility to improper payments, added 
to its size, have led to serious management challenges. In 2010, 
Medicare covered 47 million elderly and disabled beneficiaries and had 
estimated outlays of $509 billion. GAO also designated Medicaid as a 
high-risk program in part due to concerns about the adequacy of fiscal 
oversight, which is necessary to prevent inappropriate program 
spending. Medicaid, the federal-state program that covered acute 
health care, long-term care and other services for over 65 million low-
income people in fiscal year 2009, consists of more than 50 distinct 
state-based programs that cost the federal government and states an 
estimated $381 billion that year. The program accounts for more than 
20 percent of states' expenditures and exerts continuing pressure on 
state budgets. 

New directives, implementing guidance, and legislation will impact the 
Centers for Medicare & Medicaid Services' (CMS) efforts to reduce 
improper payments in the next few years. The administration issued 
Executive Order 13520 on Reducing Improper Payments in 2009 and 
related implementing guidance in 2010. In addition, the Improper 
Payments Elimination, and Recovery Act of 2010 (IPERA) amended the 
Improper Payment Information Act of 2002 (IPIA) and established 
additional requirements related to accountability, recovery auditing, 
compliance and noncompliance determinations, and reporting. In its 
fiscal year 2010 Agency Financial Report, the Department of Health and 
Human Services estimated that federal Medicare and Medicaid improper 
payments in fiscal year 2010 were more than $70 billion. 

CMS has taken actions to address some of the improper payment 
requirements. For example, recovery audit contractors identify 
improper payments and thus, help agencies to recover them. As required 
by law, CMS implemented a national Medicare Recovery Audit Contractors 
(RAC) program in 2009 and has provided guidance to the states for 
implementing Medicaid RACs. Other recent CMS program integrity efforts 
include issuing regulations tightening provider enrollment 
requirements. In addition, in compliance with the Executive Order, CMS 
has established reduction targets for the Medicare Fee-for-Service, 
Medicare Advantage, and Medicaid programs' improper payment rates. 

We view these new laws, directives, and agency efforts as positive 
steps toward improving transparency over and reducing improper 
payments in the Medicare and Medicaid programs. However, it is too 
soon to determine whether the activities called for in recent laws and 
guidance will achieve their goals of reducing improper payments while 
continuing to ensure that federal programs serve and provide access to 
intended beneficiaries. CMS is still developing its improper payment 
rate methodology for its prescription drug program and has not been 
able to demonstrate sustained progress in lowering its improper 
payment rates for the other parts of Medicare. CMS needs a plan with 
clear measures and benchmarks for reducing Medicare's risk for 
improper payments and other issues that leave the programs at risk. 
For Medicaid, we continue to stress that more federal oversight of its 
fiscal integrity is needed. 

Identifying the nature, extent and underlying causes of improper 
payments is an essential prerequisite to taking appropriate action to 
reduce them, as is implementing GAO's recommendation to develop an 
adequate corrective action process to address vulnerabilities. 
Further, CMS could take other actions to help better address the issue 
of improper payments in the Medicare and Medicaid programs. For 
Medicare, these include establishing policies to improve contract 
oversight and better target review of claims for services with high 
rates of improper billing. For Medicaid, these include (1) ensuring 
that states develop adequate corrective action processes to address 
vulnerabilities to improper Medicaid payments to providers, (2) 
issuing guidance to states to better prevent payment of improper 
claims for controlled substances, and (3) improving oversight of 
managed care payment rate setting and Medicaid supplemental payments. 
The level of importance CMS, HHS, and the administration place on the 
efforts to implement the requirements established by recent laws and 
guidance and implementation of our recommendations will be key factors 
in reducing improper payments in the Medicare and Medicaid programs 
and ensuring that federal funds are used efficiently and for their 
intended purposes. 

Managing Federal Real Property and DOD Support Infrastructure 
Management. Since our 2009 update, sufficient progress has been made 
to narrow the scope of both the Managing Federal Real Property and DOD 
Support Infrastructure Management high-risk areas. However, in both 
areas, excess federal property remains a concern. 

The federal real property portfolio is vast and diverse. It totals 
over 900,000 buildings and structures with a combined area of over 3 
billion square feet. Progress has been made on many fronts, including 
significant progress with real property data reliability and managing 
the condition of facilities. Since 2004, both OMB and GSA have 
demonstrated commitment in promoting reform efforts through 
establishing and improving a centralized real property data base. 
Agencies have developed asset management plans, standardized data, and 
adopted performance measures. Further, a June 2010 presidential 
memorandum directed agencies to identify and eliminate excess 
properties to produce a $3 billion cost savings by 2012. 

However, federal agencies continue to face long-standing problems, 
such as overreliance on leasing, excess and underutilized property, 
and protecting federal facilities. For example, OMB has not developed 
a corrective action plan to address the fact that agencies 
increasingly rely on leasing. GSA, the government's principal 
landlord, leases more property than it owns. In addition, although 
efforts to dispose of unneeded assets have been made, a large number 
of excess and underutilized assets remain. Agencies reported 45,190 
buildings as underutilized in fiscal year 2009--an increase of 1,830 
such buildings from the previous fiscal year. Maintaining this 
unneeded space is costly. In fiscal year 2009, agencies reported 
underutilized buildings accounted for $1.66 billion in annual 
operating costs. As GAO has reported over the years, attempted 
corrective action measures have not addressed the root causes that 
exacerbate these problems, such as various legal and budget-related 
limitations and competing stakeholder interests. 

While the Department of Defense has made progress in better aligning 
its missions and facilities and disposing of unneeded facilities 
through the base realignment and closure process, the Department still 
has a significant amount of excess infrastructure. Senior Defense 
officials have stated that further reductions may be needed to ensure 
that its infrastructure is appropriately sized to carry out its 
missions in a cost-effective manner. 

Federal agencies also have made limited progress and continue to face 
challenges in securing real property. GAO has reported that, since 
transferring to the Department of Homeland Security, the Federal 
Protective Service (FPS) experienced management and funding challenges 
that have hampered its ability to protect about 9,000 federal 
facilities. In particular, FPS has limited ability to allocate 
resources using risk management and lacks appropriate oversight and 
enforcement to manage its growing contract guard program. In 2010, GAO 
found that limited information about risks and the inability to 
control common areas pose challenges to protecting leased space. 

As a result, the management of federal real property remains high 
risk, with the exceptions of governmentwide real property data 
reliability and management of condition of facilities, which GAO found 
to be sufficiently improved to be no longer considered high risk. 

Notwithstanding the progress in property data reliability which allows 
OMB to measure progress governmentwide, other actions need to occur to 
address root problems, including a strategy to address the continued 
reliance on leasing in cases where ownership would be less costly. 
This strategy should identify the conditions, if any, under which 
leasing is an acceptable alternative. In addition, OMB and the Federal 
Real Property Council should develop potential strategies to reduce 
the effect of competing stakeholder interests as a barrier to 
disposing of excess property. 

DOD Weapon Systems Acquisition. Over the next 5 years, the Department 
of Defense (DOD) expects to invest almost $343 billion (in fiscal year 
2011 dollars) on the development and procurement of major defense 
acquisition programs. Defense acquisition programs usually take 
longer, cost more, and deliver fewer quantities and capabilities than 
DOD originally planned. Congress and DOD have taken steps to improve 
the acquisition of major weapon systems, yet some program outcomes 
continue to fall short of what was agreed to when the programs 
started. With the prospect of slowly growing or flat defense budgets 
for the foreseeable future, DOD must get better value for its weapon 
system spending and find ways to deliver needed capability to the 
warfighter for less than it has spent in the past. 

While the performance of individual programs can vary greatly, GAO's 
work has revealed significant aggregate cost and schedule growth in 
DOD's portfolio of major defense acquisition programs. In 2009, GAO 
reported that the total cost growth on DOD's fiscal year 2008 
portfolio of 96 major defense acquisition programs was over $303 
billion (fiscal year 2011 dollars) and the average delay in delivering 
initial capability was 22 months. 

DOD has demonstrated a strong commitment, at the highest levels, to 
address the management of its weapon system acquisitions. At the 
strategic level, DOD has started to reprioritize and rebalance its 
weapon system investments. In 2009 and 2010, the Secretary of Defense 
proposed canceling or significantly curtailing weapon programs, such 
as the Army's Future Combat System Manned Ground Vehicles and the 
Navy's DDG-1000 Destroyer--which he characterized as too costly or no 
longer relevant for current operations. DOD plans to replace several 
of the canceled programs and has an opportunity to pursue knowledge-
based acquisition strategies on the new programs. In addition, the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
has embraced an Army initiative to eliminate redundant programs within 
capability portfolios and make affordability a key requirement for 
weapon programs. These actions are consistent with past GAO findings 
and recommendations. However, if these initiatives are going to have a 
lasting, positive effect, they need to be translated into better day- 
to-day management and decision making. For example, GAO has 
recommended that DOD empower its capability portfolio managers at the 
departmentwide level to prioritize needs, make decisions about 
solutions, and allocate resources; and develop criteria to assess the 
affordability and capabilities provided by new programs in the context 
of overall defense spending. 

At the program level, GAO's recent observations present a mixed 
picture of DOD's adherence to a knowledge-based acquisition approach, 
which is key for improving acquisition outcomes. For 42 programs GAO 
assessed in depth in 2010, there was continued improvement in the 
technology, design, and manufacturing knowledge the programs had at 
key points in the acquisition process. However, most programs were 
still proceeding with less knowledge than best practices suggest, 
putting them at higher risk for cost growth and schedule delays. DOD 
has begun to implement a revised acquisition policy and congressional 
reforms that address these and other common acquisition risks. If DOD 
consistently implements these reforms, the number of programs adhering 
to a knowledge-based acquisition approach should increase and the 
outcomes for DOD programs should improve. To help promote 
accountability for compliance with acquisition policies and address 
the factors that keep weapon acquisitions on the High-Risk list, DOD 
has worked with GAO and the Office of Management and Budget to develop 
a comprehensive set of process and outcome metrics to provide 
consistent criteria for measuring progress. 

Due to actions by Congress, such as the Weapon Systems Acquisition 
Reform Act of 2009, and DOD, the department's policy for defense 
acquisition programs now reflects the basic elements of a knowledge- 
based acquisition approach and its weapon system investments are being 
rebalanced. However, to improve outcomes over the long-term, DOD 
should (1) develop an analytical approach to better prioritize 
capability needs; (2) empower portfolio managers to prioritize needs, 
make decisions about solutions, and allocate resources; and (3) enable 
well-planned programs by providing them the resources they need, while 
holding itself and its programs accountable for policy implementation 
via milestone and funding decisions and reporting on performance 

DOD Supply Chain Management. We have identified Department of Defense 
(DOD) supply chain management as a high-risk area due to weaknesses in 
the management of supply inventories and responsiveness to warfighter 
requirements. Supply chain management is the operation of a continuous 
and comprehensive logistics process, from initial customer order for 
material or services to the ultimate satisfaction of the customer's 
requirements. DOD estimated that its logistics operations, including 
supply chain management, cost about $194 billion in fiscal year 2009. 
Our work has identified three major areas of weakness in DOD supply 
chain management--requirements forecasting, asset visibility, and 
materiel distribution. 

Since our last high-risk update, DOD has taken a major step toward 
improving management of supply inventories. In response to a 
legislative mandate,[Footnote 4] the department submitted its 
Comprehensive Inventory Management Improvement Plan to Congress in 
November 2010. DOD reported that the total value of its secondary 
inventory was more than $91 billion in 2009, and that $10.3 billion 
(11 percent) of its secondary inventory has been designated as excess 
and categorized for potential reuse or disposal.[Footnote 5] In its 
plan, DOD establishes goals for reducing this excess inventory, which 
could limit future costs associated with its supply inventories. 
Issuing the plan and establishing working groups and associated 
reporting structures will help resolve long-standing problems in 
requirements forecasting and other areas of inventory management. 
Nevertheless, DOD faces implementation challenges, including 
aggressive timelines and benchmarking; non-standard definitions, 
processes, procedures, and metrics across DOD components; and the need 
for coordination and collaboration among multiple stakeholders. 

DOD will also need to place continued management emphasis on improving 
asset visibility and materiel distribution, the two other focus areas 
for improvement in supply chain management. Weaknesses in these focus 
areas can affect DOD's ability to support the warfighter. For example, 
we reported on supply support problems and shortages of critical items 
during the early operations in Iraq and on the numerous logistics 
challenges that DOD faces in supporting forces in Afghanistan. In July 
2010, DOD issued its Logistics Strategic Plan, providing high-level 
direction for supply chain management and other logistics areas. DOD, 
however, has not developed detailed corrective action plans that 
address the asset visibility and materiel distribution problems or 
their root causes and effective solutions. 

DOD also will need to fully implement a program for monitoring and 
independently validating the effectiveness and sustainability of 
corrective actions and will need to demonstrate progress in all three 
of the key focus areas. Among other things, DOD could build on the 
performance management framework in the Logistics Strategic Plan and 
the inventory improvement plan to develop management processes to 
comprehensively guide and integrate its various improvement efforts, 
implement outcome-based performance measures, gather reliable 
performance data, and demonstrate progress towards its goals for 
effective and efficient supply chain management. DOD has acknowledged 
that it needs to track the speed, reliability, and overall efficiency 
of the supply chain. 

Enforcement of Tax Laws. Internal Revenue Service (IRS) enforcement of 
the tax laws is vital to ensuring that all taxes owed are paid, which 
in turn can promote voluntary compliance by giving taxpayers 
confidence that others are paying their fair share. Typically, about 
84 percent of taxes owed are paid voluntarily and timely. IRS last 
estimated the resulting tax gap to be $345 billion for 2001. After 
late payments and IRS enforcement, the net tax gap was $290 billion. 
Many experts believe that the tax gap was underestimated for 2001 and 
has grown since then. 

Congress and IRS have taken innovative actions aimed at improving tax 
compliance, some based on GAO's work. In 2010, IRS began implementing 
a new regulatory regime for paid tax return preparers intended to help 
improve taxpayer compliance. Congress recently passed laws requiring 
financial institutions to report information on taxpayers' foreign 
bank accounts, taxpayers' securities' basis, and businesses' credit 
card receipts. 

In reports and testimonies, we have said that because the tax gap 
arises from so many different types of taxes and taxpayers, multiple 
approaches will be needed to reduce it. Suggestions from our recent 
work include: 

* Continuing to perform compliance research and use it to identify and 
target areas of noncompliance; 

* Developing a strategy for ensuring compliance by networks of related 

* Expanding IRS's legal authority to correct simple tax return errors 
before refunds are issued; and: 

* Leveraging the new paid preparer requirements, new sources of 
information about taxpayers, and new technology to improve service and 

If approaches like these could reduce the tax gap by 1 percent, the 
resulting revenue increase would be about $3 billion annually. 

The complexity of the tax code also contributes to noncompliance and 
therefore the tax gap. Complexity can cause taxpayer confusion and 
provide opportunities to hide willful noncompliance. Consequently, 
improved tax compliance and a smaller tax gap could be one of the 
benefits of tax reform and simplification. 

Sustaining Progress on High-Risk Programs: 

Overall, the government continues to take high-risk problems seriously 
and is making long-needed progress toward correcting them. Congress 
has acted to address several individual high-risk areas through 
hearings and legislation. Continued perseverance in addressing high-
risk areas will ultimately yield significant benefits. Lasting 
solutions to high-risk problems offer the potential to save billions 
of dollars, dramatically improve service to the American public, and 
strengthen public confidence and trust in the performance and 
accountability of our national government. 

The GAO's high-risk update and High Risk and Other Major Government 
Challenges Web site, [hyperlink,], can 
help inform the oversight agenda for the 112th Congress and guide 
efforts of the administration and agencies to improve government 
performance and reduce waste and risks. 

Thank you, Mr. Chairman, Ranking Member Cummings, and Members of the 
Committee. This concludes my testimony. I would be pleased to answer 
any questions you may have. 

For further information on this testimony, please contact J. 
Christopher Mihm at (202) 512-6806 or Contact points 
for the individual high-risk areas are listed in the report and on our 
high-risk Web site. Contact points for our Congressional Relations and 
Public Affairs offices may be found on the last page of this statement. 

[End of section] 


[1] GAO, High-Risk Series: An Update, [hyperlink, (Washington, D.C.: February 

[2] GAO's High-Risk and Other Major Government Challenges Web site, 

[3] The Council is comprised of the Director of National Intelligence 
as the Security Executive Agent, the Director of OPM as the 
Suitability Executive Agent, and the Deputy Director for Management, 
OMB as the chair with the authority to designate officials from 
additional agencies to serve as members. The current council includes 
representatives from the Department of Defense, Department of State, 
Federal Bureau of Investigation, Department of Homeland Security, 
Department of Energy, Department of Health and Human Services, 
Department of Veterans Affairs, and Department of the Treasury. 

[4] Section 328 of the National Defense Authorization Act (NDAA) for 
Fiscal Year 2010. Pub. L. No. 111-84 § 328 (2009). 

[5] DOD defines secondary inventory items to include reparable 
components, subsystems, and assemblies other than major end items 
(e.g., ships, aircraft, and helicopters), consumable repair parts, 
bulk items and materiel, subsistence, and expendable end items (e.g., 
clothing and other personal gear). 

[End of section] 

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